November 2007
IMF Country Report No. 07/367
© 2007 International Monetary Fund
[Month, Day], 2001
[Month, Day], 2001
August 2, 2001
January 29, 2001
August 2, 2001
St. Vincent and the Grenadines: 2006 Article IV Consultation—Staff Report; Staff
Statement; and Public Information Notice on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with
members, usually every year. In the context of the 2006 Article IV consultation with St. Vincent and
the Grenadines, the following documents have been released and are included in this package:
•
The staff report for the 2006 Article IV consultation, prepared by a staff team of the IMF,
following discussions that ended on August 2, 2006, with the officials of St. Vincent and the
Grenadines on economic developments and policies. Based on information available at the
time of these discussions, the staff report was completed on December 8, 2006. The views
expressed in the staff report are those of the staff team and do not necessarily reflect the
views of the Executive Board of the IMF.
•
A staff statement of January 11, 2007 updating information on recent developments.
•
A Public Information Notice (PIN) summarizing the views of the Executive Board as
expressed during its January 17, 2007 discussion of the staff report that concluded the
Article IV consultation.
The document listed below will be separately released.
Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive
information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent
by e-mail to publicationpolicy@imf.org.
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International Monetary Fund
Washington, D.C.
INTERNATIONAL MONETARY FUND
ST. VINCENT AND THE GRENADINES
Staff Report for the 2006 Article IV Consultation
Prepared by the Staff Representatives for the 2006 Consultation with
St. Vincent and the Grenadines
Approved by Christopher Towe and Matthew Fisher
December 8, 2006
Discussions: A staff team comprising Paul Cashin (Head), Montfort Mlachila, Emilio Pineda (all WHD), and
Junko Koeda (FIN) visited Kingstown during July 25–August 3, 2006. The mission met with the Prime Minister
(and Minister of Finance), the Director General of the Ministry of Finance, other senior government officials,
opposition parliamentarians and political leaders, representatives of the financial and business sectors, as well as
farmers, trade unions and civil society. Staff of the Eastern Caribbean Central Bank (ECCB) and Caribbean
Development Bank (CDB) also participated. Mr. Peter Charleton, Alternate Executive Director for St. Vincent
and the Grenadines, and David O. Robinson (WHD), joined for the final discussions, which also overlapped with
the ECCU Regional Discussions with St. Vincent and the Grenadines.
Economic Background: St. Vincent and the Grenadines is a 32-island economy in the eastern Caribbean, with a
population of about 106,000 and per capita GDP of about US$4,300. It is one of eight eastern Caribbean
countries and territories comprising the Eastern Caribbean Currency Union (ECCU), and its GDP accounts for
12 percent of the combined ECCU GDP. The ECCU has a common central bank, the ECCB, and a common
currency, the Eastern Caribbean (EC) dollar. The EC dollar has been pegged to the U.S. dollar at the rate of
EC$2.70 per U.S. dollar since July 1976. St. Vincent and the Grenadines has accepted the obligations of
Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and
transfers for current international transactions.
Political Situation: St. Vincent and the Grenadines has a unicameral parliament consisting of 21 members—
15 elected and 6 appointees. During elections held in December 2005, Prime Minister Ralph Gonsalves and his
Unity Labour Party won a second term, retaining their 12 to 3 parliamentary majority. A key issue during the
election concerned the planned large-scale infrastructure projects that the government deemed necessary to
ensure medium-term growth as the country transitions away from its dependence on agriculture.
Previous Board Discussion: At the conclusion of the last Article IV consultation, on July 13, 2005, Executive
Directors expressed concern about the fiscal deterioration and rising public sector debt. They underscored the
need for strong fiscal action to reduce debt sustainability risks, while making room for social and other priority
outlays. Directors also urged that measures be taken to strengthen the effectiveness of financial sector
supervision. The public information notice (PIN), which contains the summing up of Executive Directors’
discussions and policy recommendations, can be found on the IMF website at:
http://www.imf.org/external/np/sec/pn/2006/pn0660.htm.
2
Contents
Page
Executive Summary ...................................................................................................................4
I.
Background .......................................................................................................................5
II.
Recent Economic Developments ......................................................................................6
III. Policy Discussions ..........................................................................................................10
A. Overview..................................................................................................................10
B. Enhancing Growth Prospects...................................................................................11
C. Debt Sustainability and Fiscal Policy ......................................................................13
D. Responding to Adverse Shocks ...............................................................................19
E. Other Issues..............................................................................................................23
IV. Staff Appraisal ................................................................................................................23
Boxes
1.
Economic Impact of the 2007 Cricket World Cup ...........................................................7
2.
International Airport Project and Financing ...................................................................12
3.
Long-Term-Solvency of the National Insurance Services (NIS) and its Role
in the Economy ..........................................................................................................18
4.
Poverty Reduction Strategy ............................................................................................22
Figures
1.
Macroeconomic Developments, 1990–2005 ..................................................................25
2.
Fiscal Developments, 1990–2005...................................................................................26
3.
External Competitiveness, 1990–2006 ...........................................................................27
4.
Banking System Developments, 2000–06 ......................................................................28
5. Governance and Business Indicators, 2005–06 ..............................................................29
6.
Public Debt Sustainability: Bound Tests ........................................................................30
Tables
1.
Selected Social and Economic Indicators, 2001–07 .......................................................31
2.
Summary of Central Government Operations, 2001–11 ................................................32
3.
Summary of Central Government Operations, 2001–11 ................................................33
4.
Balance of Payments Summary 2001–11 .......................................................................34
5.
Monetary Survey, 2001–07.............................................................................................35
6.
Medium-Term Projections, 2001–11 ..............................................................................36
7.
Public Sector Debt, 2001–05 ..........................................................................................37
8.
Public Sector Debt Sustainability Framework, 2001–11................................................38
9.
External Debt Sustainability Framework, 2001–11........................................................39
3
10. Indicators of External and Financial Vulnerability, 2001–06.........................................40
11. Millennium Development Goals Country Profile...........................................................41
Annex
I.
Medium-Term Outlook Under Alternative Fiscal Scenarios..........................................42
Appendices
I.
Relations with the Fund ..................................................................................................44
II. Relations with the World Bank Group............................................................................47
III. Relations with the Caribbean Development Bank ..........................................................50
IV. Statistical Issues ..............................................................................................................52
4
EXECUTIVE SUMMARY
Recent Developments
Near-term economic prospects appear favorable. Growth is expected to pick up to
4 percent in 2006, reflecting continued expansion in tourism and tourism-related services, a
rebound in weather-affected agricultural production, as well as strong public sector
construction activity. Further acceleration in economic activity is expected in 2007,
underpinned by continued expansion in tourism and rising domestic investment.
The fiscal situation remains of concern. Fiscal imbalances continued to expand in 2005,
and while there has been some consolidation in 2006, public debt is accelerating. Debt
servicing absorbs the equivalent of about 25 percent of current revenues, and the mission
estimated that on current policies and assuming medium-term growth of about 4 percent per
year, public debt would be on an unsustainable path, reaching 107 percent of GDP by 2011.
Staff Appraisal
A strong, up-front fiscal adjustment is necessary to reverse past increases in the debt
burden. While staff commends the authorities for the planned adoption of the VAT and the
reduction of fuel subsidies, more needs to be done, particularly in prioritizing and properly
phasing infrastructure-enhancing projects, and ensuring that these are funded with grant
financing and highly concessional loans. The government’s wage bill, which accounts for
about half of all current expenditures, also needs to be reduced.
Limited progress has been made in strengthening St. Vincent and the Grenadines’
financial system. The balance sheet of the state-owned National Commercial Bank has
improved with a reduction in its nonperforming loans, and the prudential and regulatory
environment of the country’s financial sector has strengthened in recent years. However,
vulnerabilities remain among local banks with high exposure to government and weaklyregulated nonbank financial institutions.
St. Vincent and the Grenadines still faces the economic and social challenge of coping
with the erosion of European Union trade preferences. The authorities have attempted to
ameliorate the transition cost of the movement of resources away from agriculture by the
provision of well-targeted social safety nets for displaced farmers and agricultural workers.
The country should effectively use planned European Union assistance to ease the transition
of the economy out of banana production.
St. Vincent and the Grenadines remains vulnerable to natural disasters. The authorities
should further enhance their efforts to bolster disaster preparedness and mitigation, including
by transferring disaster risk through insurance of public assets and regional risk pooling.
5
I. BACKGROUND
1.
St. Vincent and the Grenadines is a small, open economy that has increasingly
relied on its tourism sector. The export-oriented services sector accounts for about threequarters of total value added, and the import content of both domestic consumption and
investment is high. The role of the traditionally-dominant agriculture sector has declined
sharply in recent decades (the contribution of bananas to GDP has declined from 10 percent
in the early 1990s to about 2 percent in 2005), but agricultural crops (particularly bananas)
remain important in supporting the incomes of the country’s large rural population.
2.
Unlike in most other ECCU countries, GDP growth in St. Vincent and the
Grenadines has sputtered over the last year (Figure 1). Growth in the region rebounded
after 2001, mainly through the expansion of the tourism sector, as well as Cricket World
Cup-related construction activities. However, growth slackened in 2005, reflecting a
slowdown in construction and a downturn in weather-affected agricultural production.
3.
The fiscal situation has continued to deteriorate since the late 1990s, with a rapid
rise in debt levels (Figure 2). This has reflected insufficient expenditure contraction in the
face of declining revenues and, as a consequence, public debt has risen from less than
50 percent of GDP in 1997 to 82 percent of GDP by 2005.
4.
Despite being the poorest country
in the ECCU, St. Vincent and the
Grenadines has strong social indicators.
St. Vincent and the Grenadines exhibits
near-universal adult literacy and has the
same average life expectancy at birth as the
ECCU average. This reflects targeted
interventions to reduce poverty (such as the
provision of low-income housing) and
access to free education, including at the
secondary level.
St. Vincent and the Grenadines: Social and Demographic Indicators
Population (in thousand), estimate 2006
Poverty headcount index , 2001 1/
HDI rank, out of 177 countries, 2004
Life expectancy at birth (years), 2003
Adult illiteracy rate (percent), 2001
AIDS incidence per 100,000, 2004
Immunization coverage (percent), 2000
Per capita energy availability (calories per day)
Infant mortality rate (per 100,000 live births), 2003
GDP per capita (US$) in 2006, estimate
St. Vincent and
the Grenadines
ECCU
106
38
87
73
11
99
95
2,660
22
4,364
568
29
73
74
8
29
93
2,695
17
6,479
1/ Percentage of population living below each country's locally-defined poverty line.
6
II. RECENT ECONOMIC DEVELOPMENTS
5.
Real GDP growth slowed to 2.2 percent in 2005, but is expected to rebound in
2006. The 2005 slowdown reflected a sharp contraction in the construction sector, and a
further deterioration in agricultural
Contribution to Real GDP Growth by Sector
(In percent)
production, as well as a drop in
8
Agriculture
Construction
Government services
Tourism 1/
tourism-related transportation and
7
trade. Growth in 2006 is estimated to
6
Real GDP growth
5
have accelerated to just over
4
4 percent owing to a pick up in
3
construction and tourism-related
2
services, as well as a rebound in
1
agricultural production. Average
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
-1
annual inflation rose to 4 percent in
-2
2005, mainly due to higher oil prices,
Sources: Central Statistical Office of St. Vincent and the Grenadines; and Fund staff projections.
1/ Includes wholesale and retail trade, hotels and restaurants, airport transport and half of local
transport.
and is estimated to have remained at
about that level in 2006.
6.
Reflecting the effects of the economic slowdown and the electoral campaign, the
fiscal position weakened further in 2005. Revenues performed poorly mainly on account of
disappointing consumption tax collections,
as well as the effect on petroleum tax
receipts of the limited pass-through of
international oil prices to domestic
petroleum product prices. At the same time,
interest payments and transfers to
households rose sharply, taking the overall
deficit to 5.6 percent of GDP and gross
public sector debt to 82 percent of GDP.
St. Vincent and the Grenadines: Selected Economic Indicators, 2001–06
2001
Real GDP
CPI, end of year
Real effective exchange
rate (depreciation -)
Central government balance
Central government primary balance
External current account balance
2002
2003
-0.1
-0.6
(Percentage change)
3.2
2.8
0.4
2.7
-0.1
-5.4
-2.1
0.5
(In percent of GDP)
-4.2
-3.3
-1.6
-0.6
-10.5
-5.9
-11.5
-20.8
2004
Prel.
2005
Proj.
2006
6.8
1.7
2.2
3.9
4.1
4.5
-4.6
4.9
..
-3.6
-1.1
-5.6
-2.6
-4.2
-0.4
-25.1
-24.0
-24.5
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.
Summary of Central Government Operations, 2001–06
7.
The 2006 budget attempted to
strengthen the fiscal position, but the
situation remains difficult. The main
revenue measure was a 43 percent
increase in retail gasoline prices from
EC$8 to EC$11.5 per gallon,
implemented in two steps in January and
August 2006. At the same time, the
government announced a capping of tax
concessions at 50 percent of import duties
and an expansion of consumption tax
payable on a number of previously-exempt activities and products. However, the budget
generally avoided expenditure cuts, and a number of large-scale programs and projects were
(In percent of GDP, unless otherwise stated)
2001
2002
2003
2004
Est.
2005
Active
2006
Current
Policies
2006 1/
Total revenue and grants
Current revenue
Grants
30.7
28.7
1.9
31.7
30.6
1.1
31.3
30.8
0.4
30.0
29.2
0.7
30.5
29.0
1.5
31.1
29.6
1.4
30.8
29.3
1.4
Total expenditure and net lending
Current
Capital expenditure
Net lending
32.7
27.7
5.0
0.0
34.0
28.0
6.4
-0.4
34.7
26.7
7.9
0.0
33.6
26.3
7.2
0.0
36.1
27.8
8.3
0.0
35.4
27.7
7.6
0.0
37.3
29.3
8.0
0.0
Current balance (before grants)
1.0
2.6
4.1
2.9
1.3
1.9
0.1
Overall balance (cash basis)
Of which
Primary balance
-2.1
-4.2
-3.3
-3.6
-5.6
-4.2
-6.4
0.5
-1.6
-0.6
-1.1
-2.6
-0.4
-2.5
Gross central government debt (in percent of GDP)
Public sector debt (in percent of GDP)
Debt service as a proportion of current revenues
GDP at market prices (EC$ millions)
65.5
68.2
14.1
933
68.3
70.5
14.0
987
67.8
72.3
14.7
1,032
70.4
78.1
19.3
1,101
72.1
81.6
21.3
1,161
70.8
84.5
24.9
1,258
76.9
86.7
25.4
1,258
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.
1/ As in the approved budget, except for capital expenditures, for which an execution rate of 50 percent is assumed,
in line with the average rate for 2001-04.
7
started or accelerated, including universal secondary education, the renovation of the cricket
stadium (Box 1), a new international airport on the main island of St. Vincent, and
construction of a jetport in the Grenadines.
Box 1. St. Vincent and the Grenadines: Economic Impact of
the 2007 Cricket World Cup
The ninth Cricket World Cup (CWC) will be held in the West Indies between March 5 and April 28, 2007,
and will be the largest single sporting event held in the region. Organizers expect that close to 800,000 tickets
will be purchased during the tournament, with over two billion people worldwide expected to watch the matches
on television. St. Vincent and the Grenadines has been chosen as one of the warm-up venues, and will host four
matches, including matches between previous CWC champions, Australia and England, in February 2007.
In order to meet the requirements of the CWC, the St. Vincent and the Grenadines authorities are
significantly redeveloping the sporting complex at Arnos Vale. The 2006 budget allocated EC$20 million for
this project. In addition to the Arnos Vale Cricket Facility, an initial EC$5 million is budgeted for a soccer
stadium. Additional costs related to security standards and media facilities required for the CWC are likely to be
significant.
The economic benefits to St. Vincent and the Grenadines from hosting warm-up games are likely to be less
than the cost of redeveloping the sporting facilities. This reflects the fact that St. Vincent and the Grenadines
will be hosting only warm-up matches for the tournament, and that the CWC will be played during the peak
winter tourism season, so that the additional inbound tourists induced by the CWC may supplant, rather than
supplement, the regular tourist economy. Finally, the boost to public expenditure and tourism spending could
place upward pressure on the price level and the real exchange rate, adversely affecting the tradables sector of
St. Vincent and the Grenadines’ economy.
8.
Due to difficulties in establishing the institutional and regulatory framework for
the value-added tax (VAT), implementation of the VAT has been delayed from January
to May 2007. The authorities are making good progress to achieve this revised target date.
The VAT implementation unit was established in 2005, and with Fund (FAD, LEG) and
CARTAC technical assistance, the authorities prepared (and in February 2006 published) a
White Paper that outlined the government’s views and policies on the VAT. The government
has also completed VAT legislation, which was adopted in October 2006.
8
St. Vincent and the Grenadines: Interest Rate on
91-Day Treasury Bills, 2003-06 (In percent)
7
6
St. Vincent and the Grenadines 1/
5
4
Spread over U.S. T-bill rate 2/
3
2
1
Oct-06
Jun-06
Aug-06
Jan-06
Mar-06
Nov-05
Jul-05
Sep-05
May-05
Jan-05
Mar-05
Nov-04
Jul-04
Sep-04
May-04
Jan-04
Mar-04
Nov-03
Jul-03
Sep-03
Mar-03
0
May-03
9.
St. Vincent and the Grenadines
continues to be the main issuer of treasury
bills auctioned in the ECCU’s Regional
Government Securities Market (RGSM).
Despite its rising stock of debt, spreads over
U.S. treasury bills in 2006 have continued to
shrink, possibly reflecting a lack of alternative
investment opportunities in the region.1
Sources: Eastern Caribbean Regional Government Securities Market and U. S. Federal Reserve.
1/ March and May 2004 rates for St. Vincent and the Grenadines are interpolated.
2/ U. S. rate is interest rate on 13-week treasury bills.
10.
The external current account deficit
narrowed in 2005, yet is likely to
St. Vincent and the Grenadines: Selected External Indicators, 2001–07
expand in 2006. The contraction in
Prel.
Proj.
Proj.
2001
2002
2003
2004
2005
2006
2007
2005 was driven by a slowdown in
(Percentage change)
imports due to the weakening of
Terms of trade
2.9
2.6
-4.9
0.0
-4.3
0.6
-2.1
effective exchange rate, (depreciation -)
-0.1
-5.4
-5.9
-4.6
4.9
...
...
GDP growth, which more than offset Real
Banana export receipts
-25.4
16.0
-25.2
10.0
-8.9
23.3
-4.7
(In percent of GDP)
a fall in agricultural exports. In 2006
Current account
-10.4
-11.5
-20.8
-25.1
-24.0
-24.5
-24.9
Exports
50.9
48.8
45.2
45.2
44.4
45.3
44.8
the current account deficit is
Imports
60.2
58.8
63.1
66.7
64.7
65.3
65.8
Tourism receipts
25.8
24.9
23.8
23.4
23.5
23.4
23.9
expected to widen slightly (to about
Oil imports
4.9
4.2
5.2
6.1
7.7
7.8
7.9
Foreign
direct
investment
(net)
6.1
9.3
14.4
16.1
7.7
9.6
13.5
24½ percent of GDP), mainly on
Outstanding external debt (end of period)
49.1
46.5
50.9
54.1
54.7
53.3
50.7
account of continued high oil imports Sources: St. Vincent and the Grenadines authorities, ECCB, and Fund staff estimates.
and imports related to private construction and public capital expenditure. The current account
is expected to be largely financed by FDI inflows.
11.
External competitiveness appears to have improved in recent years (Figure 3). The
depreciation of the U.S. dollar against major currencies since end-2001 has helped depreciate
the customer-based exchange rate index by 13 percent in real effective terms. Real wage
increases have remained modest, and St. Vincent and the Grenadines has steadily increased its
share of stayover visitors in the ECCU and the wider Caribbean. Although rising oil prices and
flat export prices have caused the terms of trade to deteriorate since 2002, domestic inflation
has been contained and the real effective exchange rate does not appear to be misaligned.
1
Since March 2003, St. Vincent and the Grenadines has issued (on a monthly basis) EC$16 million in 91-day
treasury bills. In August 2006, a ten-year bond was issued on the RGSM for EC$40 million.
9
12.
Broad money (M2) growth
remained strong in 2005, despite the
economic slowdown. Bank deposits were
used to fund both a surge in net lending to the
central government and an expansion in
private credit, mainly to households. In 2006,
private credit is projected to increase in line
with service sector growth, while public
sector credit has also risen, due mainly to the
funding of several large infrastructure
projects.
St. Vincent and the Grenadines: Selected Monetary Indicators, 2001–07
2001
2002
2003
2004
2005
Proj.
2006
Proj.
2007
13.7
0.9
6.4
5.5
8.3
2.2
8.9
4.0
(Annual percentage change)
Broad money
Credit to private sector
3.0
2.3
8.3
4.6
1.9
0.6
(Percent contribution compared to M2 at the beginning of the year)
Net foreign assets
-4.1
2.9
5.7
15.7
-4.6
1.4
Net domestic assets
7.2
5.4
-3.9
-2.0
11.0
6.9
Net credit to public sector
0.3
4.8
-4.0
2.7
7.6
4.9
Of which
Central government
-2.9
6.4
-5.5
-5.7
8.3
4.6
Credit to private sector
2.1
4.3
0.6
0.8
4.3
1.7
Net credit to nonbank financial inst.
-3.5
0.9
-0.3
4.5
-1.1
0.5
Other items (net)
8.3
-4.6
-0.2
-10.0
0.3
-0.1
1.9
6.9
4.2
4.6
2.9
-0.2
0.1
Sources: St. Vincent and the Grenadines authorities, ECCB and Fund staff estimates.
Banking Sector: Selected Financial Soundness Indicators, September 2006 1/
13.
Prudential indicators point to a
(In percent)
strengthening in the banking sector. Although
St. Vincent
ECCU
& the Grens.
Average
high government exposures and deposits in the
Capital adequacy ratio 2/
16.8
19.2
Unsatisfactory assets/total loans
4.2
8.2
state-owned local bank—the National
Gross government exposure/total assets
19.3
15.1
Provisions for loan losses/total loans
2.0
2.6
Commercial Bank (NCB)—remain a potential
Provisions for loan losses/unsatisfactory assets
48.9
32.4
(Pre-tax) return on average equity (domestic banks)
5.4
7.0
source of vulnerability, asset quality and capital (Pre-tax) return on average assets
0.5
0.7
Source: ECCB.
adequacy improved in 2005 and 2006
1/ Prudential indicators are based on commercial banks' own reporting, with
infrequent onsite verification by the ECCB.
(Figure 4). Local banks have significantly
2/ Total qualifying capital/risk weighted assets (domestically licensed banks).
reduced nonperforming loans, and an injection
of capital from a foreign parent bank to its local subsidiary improved system capital adequacy.
14.
There has been limited progress toward strengthening the financial sector
supervisory and regulatory framework since the 2004 ECCU regional FSAP. The FSAP
recommended: a uniform Banking Act to strengthen the regulatory and supervisory authority
of the ECCB (yet to be passed by Parliament); more frequent and timely onsite inspections (to
be carried out by the ECCB); and implementation of non-zero risk weighting for government
and public sector obligations. Only the latter measure has been adopted (in December 2005).2
Following the passage of the International Bank Act in December 2004, there has been a
strengthening of regulation and supervision of the offshore banking sector.3 Guidelines for
prudential requirements for offshore banks, consistent with Basel Core Principles, have been
drafted and are expected to be issued in the first quarter of 2007.
2
Under the new guidelines, banks apply a 20 percent risk weight to nonperforming public sector exposures and
charge 10 percent of the amount of nonperforming exposures as loan loss provision.
3
Activity in the offshore sector continues to expand. As of August 2006, the St. Vincent and the Grenadines’
offshore sector comprised: 7 offshore banks, 6,177 international business companies, 99 international trusts,
13 insurance companies, and 29 mutual funds—all are regulated by the International Finance Service Authority
(IFSA).
10
III. POLICY DISCUSSIONS 4
A. Overview
15.
The principal economic challenge facing the country is to find new sources of
sustainable growth without compromising fiscal and debt sustainability. Although there is
a need to improve air transport links to boost and diversify tourism, the public debt stock is
already too high, constraining expenditure on poverty-reduction and social programs and
reducing the fiscal room for maneuver in the event of an adverse exogenous shock. Therefore,
given relatively limited fiscal space to undertake high-cost capital projects, staff cautioned
against the planned acceleration in capital expenditure. Accordingly, the discussions were
organized around three key areas:
•
Raising medium-term growth prospects, including by developing new sources of
growth away from the declining banana industry towards tourism.
•
Reinforcing fiscal policy and ensuring debt sustainability, through measures to
increase revenue, and cuts in the wage bill and public investment program.
•
Responding to adverse shocks, in particular the erosion of banana trade preferences
and the country’s proneness to natural disasters.
16.
The authorities generally agreed with the mission’s recommendations, but placed
a greater weight on the need for fiscal policy to support social needs and the build-up in
national transportation infrastructure. In particular they agreed on the importance of
medium-term fiscal consolidation, including by adjustment of domestic fuel prices and the
introduction of the VAT. However, the authorities also underscored that expenditure would
need to rise in the near term on education, health, and public infrastructure, to facilitate the
transition of the economy from agriculture to tourism.
17.
Dialogue between Fund staff and the authorities continues to deepen. The
authorities considered the mission’s policy recommendations to be useful, particularly the
detailed fiscal policy recommendations provided on this and previous Article IV consultations.
The government has been receptive to Fund advice, particularly in bolstering revenues through
the raising of domestic petroleum prices and implementation of the VAT and market-valuation
based property taxes. However, there has been less responsiveness to the mission’s
recommendations to rein in social and capital expenditures.
4
The discussions were complemented by the 2006 Eastern Caribbean Currency Union (ECCU) regional
discussions, the report for which covers common regional issues related to monetary and exchange rate issues
and banking system supervision.
11
B. Enhancing Growth Prospects
18.
Raising the country’s growth potential will be a challenge. Bananas have ceased to
be a major contributor to the country’s economy and tourism is at present largely limited to
several high-end hotels in the Grenadines, with very few large hotels on the main island. The
tourism industry is constrained by limited international air transportation links, and the
relatively high cost of capital and labor. The mission suggested that strong reforms (outlined
below) would help the economy achieve medium-term growth of 4–5 percent a year. The
authorities, however, considered the staff’s estimates as overly cautious, arguing that mediumterm growth could average close to 6 percent per year, given a successful transition from
agriculture to a tourism- and services-based economy.5
19.
Discussions centered on four key structural reform priorities.
•
Tourism and international air transportation. Although there is a need to improve
international air transport links to develop the country’s tourism potential, staff
stressed the need for grants and highly concessional financing for the bulk of the
projects. In particular, the mission welcomed the authorities’ plans to mobilize donor
assistance for the proposed new airport at Argyle, which is expected to cost
EC$480 million (about 40 percent of 2005 GDP), over the period 2006–11 (Box 2).6
However, the mission still suggested that an updated economic feasibility study was
needed for the project, given its cost and potential impact on the country’s debt
position.
•
Strengthen the investment climate. In line with other ECCU countries, private
domestic investment has stagnated in recent years, mainly as a result of high real
interest rates, the lack of opportunity for equity finance, and a tax regime that is
overburdened with tax incentives. The mission called for a more transparent
framework for providing incentives, that more effectively favored new investment,
possibly involving accelerated depreciation and loss carry-forward provisions. This
could permit a gradual lowering of the corporate income tax rate—which presently is
paid by only those companies not benefiting from tax concessions—from 40 to
30 percent. Further enhancements to the publicly-owned, one-stop investment agency
(National Investment Promotions, Incorporated) would also help strengthen the
climate for both foreign and local direct investment.
5
The authorities continue to promote economic diversification through: the European Union (EU)-funded
Agriculture Diversification Program, enhancing links between agriculture and tourism, and developing the
fishing industry and greater food processing.
6
At present, the country does not have an international airport that allows access for medium-haul jet aircraft.
The government has also commenced construction of Canouan Island jetport (at a cost of EC$60 million) in the
Grenadines.
12
Box 2. St. Vincent and the Grenadines: International Airport Project and Financing
The proposed international airport on the main island of St. Vincent has been under discussion for more
than two decades, despite several estimates suggesting that the project is economically unviable. The
Canadian consulting firm Marshall Macklin Monaghan (MMM) completed the most recent comprehensive
airport study in September 1998, and argued against building a new airport and concluded that the only
economically viable option was a limited renovation of the existing airport at ET Joshua.
In 2005, the government decided to go ahead with the new airport at Argyle—the estimated total cost is
about US$178 million (40 percent of the country’s 2005 GDP)—without further cost-benefit analysis. In
November 2004, the government established the International Airport Development Corporation (IADC), a fully
government-owned company to facilitate financing, construction, and operation of the airport. The decision to go
ahead with the project without further cost-benefit analysis was based on the view that further analysis was not
needed given the government’s efforts to achieve grant rather than commercial funding for the project.
The proposed financing plan has two pillars: bilateral official assistance and the sale of state-owned lands.
Bilateral official assistance would be provided mostly in grants. Cuba and Venezuela are expected to provide a
considerable amount of assistance in kind in respect of earthwork and airport designs. In addition, Taiwan
Province of China would provide grants and loans, and the Malaysian Airport Authority would provide equity
investment. The second pillar—the sale of state-owned lands—would be used mainly to finance land acquisition
at Argyle. The government has vested over 800 acres in the IADC as its equity, including prime lands in Bequia
and Buccament. According to preliminary estimates, these lands are worth more than EC$270 million (US$100
million) in total; a part of them would be sold through the IADC’s real estate agent, the National Properties Ltd.
The IADC has obtained bridging loans from National Insurance Services and a Trinidad bank while the sale of
the state-owned lands takes place.
This large-scale public-led investment raises a number of concerns. First, there has not been any updated
cost-benefit analysis since 1998. Relatedly, there has not been an update of the market analysis, which can be
crucial in determining demand for use of the airport. Also, the cost effectiveness of the project has not been
compared with alternative methods of improving air access, for example, improving the shuttle system between
the existing airport and neighboring island countries. Second, there are considerable uncertainties related to the
grants in kind, for which there do not seem to be formal written agreements. Lastly, the possibility of publicprivate partnership, as an alternative to traditional public investment, has not been fully explored—at this stage,
the government intends to seek private investment only if there is a need to fill any financing gap.
•
Enhanced regional integration. Although St. Vincent and the Grenadines has
relatively good governance indicators, the mission encouraged the authorities to take
advantage of regional integration to reduce business costs (Figure 5). In this context,
there is scope for St. Vincent and the Grenadines to enhance implementation of the
Caribbean Community (CARICOM) Single Market and Economy (CSME)
requirements, and to continue to push for free labor movement within CARICOM.
There was also merit in improving regional cooperation in the provision of collective
government services and the granting of tax concessions, and supporting regional
efforts to increase the flexibility of the movement of goods, labor and capital across
Organization of Eastern Caribbean States (OECS) countries. The authorities stated
that St. Vincent and the Grenadines (in common with other OECS countries) had
initially been reluctant to agree to the CSM on the original timetable of January 2006,
13
as they felt there were few gains from trade available to disadvantaged regions (such
as the OECS), given the domination of intra-CARICOM trade by Trinidad and
Tobago and other larger Caribbean countries. Accordingly, St. Vincent and the
Grenadines had been a leading proponent of a regional fund to finance development
expenditures for all CARICOM countries. Once this fund was established,
St. Vincent and the Grenadines (in common with other OECS countries) signed on to
the CSM in June 2006, and looked forward to drawing upon the associated Regional
Development Fund (RDF), to finance social and infrastructure expenditures.7
ECCU: Doing Business Indicators, 2006
Antigua &
Barbuda
Dominica
Grenada
St. Kitts &
Nevis
St. Lucia
St. Vincent
& Grens.
Starting a business
Registering property
Getting credit
Enforcing contracts
Paying taxes
Closing a business
Protecting investors
Trading across borders
Dealing with licenses
Employing workers
22
71
101
47
145
54
19
47
15
40
24
78
101
159
20
151
19
97
51
50
50
145
83
143
45
151
19
84
12
34
105
136
117
135
116
151
19
37
7
35
43
51
101
160
9
39
19
45
10
29
29
101
83
125
32
151
19
48
1
48
Overall ranking
33
72
73
85
27
44
Source: World Bank, "Doing Business."
Note: Ranking out of 175 economies, where 1 is most conducive and 175 is least conducive.
•
Better leveraging benefits from migration. More than a quarter of the labor force of
St. Vincent and the Grenadines emigrated to OECD countries in the period 1970–
2000. This large-scale emigration has produced a steady flow of remittances from
Vincentians abroad. The mission suggested that there was scope to boost the growth
potential of remittances, including through the reduction of regulatory barriers that
discourage remittance flows and investment by returning nationals. The authorities
broadly concurred with the staff’s recommendations and intended to continue to
enhance links with the country’s large diaspora.
C. Debt Sustainability and Fiscal Policy
20.
Staff cautioned that measures announced in the 2006 budget were insufficient to
put the country on a sustainable debt path. This is mainly because the budget focused on
only revenue measures (the VAT and a one-time increase in petroleum prices), which were
more than offset by a surge in outlays. Looking forward, the staff estimated that absent strong
fiscal adjustment, public debt would reach 107 percent of GDP by 2011, well above the
75 percent of GDP specified in the government’s Debt Strategy. This would boost central
government debt servicing to more than 8 percent of GDP (about 28 percent of current
7
The CSM’s RDF is to take effect from July 2007, and will provide financial and technical assistance to
disadvantaged regions and countries. The RDF will commence with an initial capitalization of US$130 million,
to be contributed jointly by member states (St. Vincent’s contribution will be US$1.64 million).
14
revenues), raise the government’s vulnerability to rollover risk, and constrain its ability to
undertake poverty alleviating expenditures.
21.
Against this background, the mission recommended the adoption of a frontSt. Vincent and the Grenadines:
loaded fiscal adjustment. On the basis of an
Public Sector Debt Dynamics (In percent of GDP)
active scenario involving additional fiscal
5
Central Government Primary Balance
4
measures, an increase in grant financing, and
3
Active scenario
medium-term real GDP growth of the order of
2
1
4–5 percent, the stock of public debt could
0
-1 2004 2005 2006 2007 2008 2009 2010 2011
decline to 76 percent of GDP over the next six
-2
years (Annex I).
-3
Current policies
-4
-5
-6
-7
22.
The mission recommended achieving a
primary deficit of 0.4 percent of GDP for
110
2006, with further consolidation over the
medium term. The adjustment in 2006 (which
100
would be around 2 percent of GDP) could be
90
achieved from the revenue side, mainly through
increased petroleum taxes (as a result of the
80
more frequent pass-through of international oil
70
price changes), more vigorous collection of
company income tax, and additional capital
60
revenue (derived from land sales).8 This would
bring the tax collection effort, which had lagged
in 2004–05, in line with levels attained in previous
years. In order to accommodate planned capital
expenditures while ensuring fiscal adjustment, stricter
discipline was needed on current expenditures, mainly
on wages and salaries. The mission urged a further
fiscal adjustment of about 1.2 percent of GDP in
2007, achievable by a range of measures discussed
below, taking the central government primary surplus
to 0.8 percent of GDP.
Public Debt
Current policies
Active scenario
2004
2005
2006
2007
2008
2009
2010
2011
St. Vincent and the Grenadines: Yield from Additional
Fiscal Measures (2007–11)
In EC$
million
In percent
of GDP
26
1.6
(Average yield per year)
Revenue and grants
VAT (assuming increase in compliance rate
and uniform rate of 15 percent)
Property tax reform (move to market
valuation and higher compliance)
Grants
Expenditure
Wage savings (assuming constant real
wage bill)
Prioritization of capital expenditures
16
1.0
5
0.4
4
0.2
25
1.6
15
0.9
10
0.7
Source: Fund staff estimates.
23.
In the wake of policy changes following the mission, the authorities appear likely
to achieve a fiscal position close to that of the active scenario for 2006. Effective
August 21, 2006, retail prices of gasoline and diesel were raised by 20 and 3 percent,
8
The taxation authorities estimate that there are up to about EC$90 million in uncollected taxes, mainly due to
insufficient enforcement.
15
respectively. Expenditure on wages and salaries has also been constrained in the third quarter
of 2006.
24.
Staff commended the authorities on their preparations for introduction of the
VAT. The revised target implementation date (May 1, 2007) appears feasible, and with the
planned single VAT rate of 15 percent, the tax is likely to be revenue positive (yielding about
1 percent of GDP in additional revenues).9
25.
Staff urged the authorities to stand firm against pressures to increase the list of
products and services exempted (or zero-rated) under the VAT. Yielding to these
pressures would increase the administrative burden, erode the tax base, distort incentives in
the tax regime, and complicate compliance. Staff also commended the authorities on their
active engagement with the IMF and CARTAC to obtain the technical assistance needed for
VAT establishment and implementation.
26.
Over the medium term, there is scope to raise revenues by broadening the
coverage of the tax system. Key aspects include:
•
Property tax. Property tax collections do not seem to be keeping pace with real estate
prices. Staff encouraged the government to move to a market valuation-based property tax
system as soon as technically feasible, and to complete the required cadastral surveys as an
important first step. The authorities agreed with this recommendation, and plan to revise
the property tax system during 2008, following introduction of the VAT.
•
St. Vincent and the Grenadines:
Taxation of petroleum products. At present
Effective Gasoline Tax Rate and Gasoline Import Prices
9.00
1.20
there is a legislated consumption tax, but in
8.00
recent years the government has been
1.00
7.00
absorbing most of the additional cost of
6.00
0.80
5.00
higher world oil prices, thereby eroding
0.60
4.00
revenues. The mission urged the adoption
3.00
0.40
of a flexible pricing mechanism. While the
2.00
0.20
1.00
authorities broadly agreed with the staff’s
0.00
0.00
advice, they argued that they preferred to
maintain a system of discrete price
adjustments to enable them to smooth out the impact on the poor, who rely more heavily
on cooking fuel and public transportation.
Effective Tax Rate
(left scale)
Qtr 1 '02 Qtr 3 '02 Qtr 1 '03 Qtr 3 '03 Qtr 1 '04 Qtr 3 '04 Qtr 1 '05 Qtr 3 '05 Qtr 1 '06 Qtr 3 '06
Source: Fund staff estimates.
1/ F.O.B. plus freight and insurance.
9
The VAT Act was passed by Parliament in October 2006, and envisages a single VAT rate of 15 percent
applied to goods and services; tourist accommodations will have a rate of 10 percent. Many basic items have
been zero-rated (such as bulk rice, flour and sugar) or exempted (such as publicly-supplied water and prescription
drugs) from VAT.
(EC$)
(percent of CIF))
CIF Gasoline Prices 1/
(right scale)
16
•
Reducing tax concessions. Tax competition
is severe in the region, and St. Vincent and
the Grenadines has extensive tax
concessions, both for corporate and customsrelated taxes, which result in a loss of
revenue of about 10 percent of GDP. The
authorities stated that they were committed
to reducing discretionary concessions, but
that a certain level of statutory concessions
was needed to attract foreign direct
investment.
St. Vincent and the Grenadines: Loss of
Customs Revenue from Exemptions, 2001-06
35
EC$76m
As % of tax revenue
EC$84m
As % of GDP
30
EC$77m
Real GDP growth
25
EC$87m
EC$56m
EC$46m
20
15
10
5
0
2001
2002
2003
2004
2005
2006 1/
-5
Source: St. Vincent and the Grenadines, Customs and Excise Department.
1/ Fund staff estimates.
27.
Staff stressed that addressing St. Vincent and the Grenadines’ fiscal imbalances
required stricter spending discipline. There are several key components of expenditures
where reductions can be made:
•
Prioritization of the capital budget. Greater prioritization of capital expenditures would
enhance the efficiency of public sector investments. The 2006 budget includes provisions
for a large number of new, high-profile projects—many without adequate cost-benefit
analysis—including the new international airport on the main island, the jetport in the
Grenadines, sport facility renovation, and road construction. Better efforts were needed to
prioritize and properly phase infrastructure projects, and fund these with grant financing
and concessional loans. Staff urged that the government use Caribbean Development Bank
and World Bank expertise to evaluate the efficacy of all public sector investment program
(PSIP)-listed projects above a certain threshold (e.g., EC$5 million), and to upgrade the
PSIP, with technical assistance from CARTAC.
•
Public sector wages and employment. The government’s wage bill, which accounts for
about half of all current expenditures, is among the highest in the ECCU. The mission
recommended that growth in the number of civil servants be strictly limited and wage
increases be prudently managed, by initiating civil service reform aimed at reducing
employment levels and providing greater differentiation in the pay scale between higherand lower-skilled workers. The authorities argued that the country’s wage bill was not
excessive. They pointed out that the delivery of government services across a multi-island
country was very costly.
17
•
Social security reforms. The financial position
St. Vincent and the Grenadines: Population by Age Group, 2005-2050
(Index 2005=100)
450
of the country’s social security scheme,
400
Aged 65+ years
National Insurance Services (NIS), is weak,
350
and there is a need for fundamental reforms
300
(Box 3). Population ageing and the maturing
250
of the scheme will require steep increases in
200
expenditure in the medium term that will not
150
Aged 15-64 years
be covered by contributions and accumulated
Total population
100
NIS assets. The mission suggested
50
Aged 0-14 years
consideration of a range of options, including:
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
increasing the contribution rate for social
Source: U.S. Census Bureau, International Database.
security pensions; gradually raising the
retirement age from 60 to 65; and eliminating the duplication of pensions (by capping the
combined benefits from civil service and social security pensions). The authorities agreed
that it was important to quickly tackle the challenges facing the NIS, and undertook to
examine further the staff’s proposals. The authorities also stated that they have agreed in
principle to a gradual increase in the contribution rate from 6 percent to 10 percent. They
also supported the establishment of an OECS pension reform commission, that would
examine pension-related issues in all OECS countries.
28.
Social programs have evolved in a piecemeal fashion, and are expensive and
poorly targeted (Box 4). The mission welcomed the government’s announcement that a
household survey and poverty assessment would be undertaken in 2007, and suggested that
these results should be used to improve the targeting of social benefits and to develop
transparent criteria for their provision.
29.
Staff recommended that the government’s Debt Strategy be strengthened. The
Strategy targets a medium-term debt level of 75 percent of GDP, to be achieved mainly by
restructuring of Ottley Hall debt (11½ percent of GDP at end-2005).10 The mission stated that
this target would still leave the fiscal position vulnerable, given the growing cost of debt
servicing, the declining concessionality of public borrowings, and the volatility of national
income and export receipts. The authorities were more optimistic, and viewed the target as
achievable and a useful benchmark for fiscal policy. They also anticipated a reversal of the
10
In 1999 the government assumed a large private external debt of EC$156 million (amounting to a then
17½ percent of GDP) for the construction of Ottley Hall shipyard (a yacht repair facility). The shipyard was
operated by a joint-venture company, Caribbean Charter and Yacht Yard Holdings, owned by the government
(49 percent) and a private company, the St. Vincent Yachting and Shipping Company (51 percent). The
government had guaranteed the debt. In 2001 the government obtained a moratorium on interest payments
pending a settlement with creditors (foreign commercial banks), and continues to seek a debt restructuring. The
Italian export guarantee agency, SACE, which insured the external financiers, continues to service the loan. The
government has clearly indicated that in reaching any agreement with creditors to write down the debt, it would
not pay more for the debt than the value of the Ottley Hall assets (valued in 2005 at about EC$15 million).
18
public debt ratio, once the much-needed near-term boost to social and infrastructure spending
was complete.
Box 3. St. Vincent and the Grenadines: Long-term Solvency of the National Insurance Services
(NIS) and Its Role in the Economy 1
St. Vincent and the Grenadines’ National
Insurance Services (NIS) faces major challenges.
Its 2005 Actuarial Review projected that after 2012,
contributions collected will not be sufficient to cover
expenses. This will lead to a decreasing net income
and consequently a depletion of the fund’s reserves.
Estimates of the net present value of future income
and expenditure streams show a net implicit liability
equivalent to 12 percent of GDP. Furthermore, it is
estimated that in a 60-year horizon the implicit
liability would be close to 100 percent of GDP.
ECCU: Public Debt, Implicit Pension Liabilities and Contribution Rates
Public debt
(percent of
GDP)
Net Pension Contribution
Liabilities
(percent of
(percent of
insurable
GDP) 1/
earnings)
102
14
Antigua and Barbuda
116
42
Dominica
130
-23
Grenada
177
-50
St. Kitts and Nevis
68
-45
St. Lucia
78
12
St. Vincent and the Grenadines
Source: Osborne (2004); Fund staff estimates and projections.
1/ 30 year horizon.
8.0
9.8
9.0
11.0
10.0
6.0
Pensions in the Caribbean
To ensure the financial soundness of the scheme, it
is estimated that the NIS would have to almost
double the contribution rate to at least 11 percent
of insurable earnings (IE) within the next five
years. Currently St. Vincent and the Grenadines has
the second-lowest contribution rate in the
Caribbean⎯6 percent of IE. Other reforms to assist
the finances of the NIS could include: raising the
retirement age; streamlining benefits (including
reducing overlap with civil service pensions); and
altering investment portfolios.
Retirement Age
Social Security
Civil
service
Normal
Early
Social Contribution Rate
Insured
Employer
Total
person
Separate
civil
service
Antigua & Barbuda
60
60
n.a.
3%
5%
8%
Yes
Dominica 1/
60
60
n.a.
3%
7%
10%
No
Grenada
60
60
n.a.
4%
5%
9%
No
St. Kitts & Nevis
55
62
n.a.
5%
6%
11%
Yes
St. Lucia 2/
St. Vincent &
Grenadines
55
61
60
5%
5%
10%
No
55
60
n.a.
2.5%
3.55%
6.05%
Yes
Yes
Barbados
60
65
63
7.75%
8.5%
16.25%
Jamaica
60-65
65-70
60-65
2.5%
2.5%
5%
Yes
8.7%
Yes
Trinidad
55
65
60
2.9%
5.8%
Sources: Country authorities, U.S. Social Security Administration, ILO, and IMF.
1/For those who started in the civil service after 1976.
2/Starting February 2003, newly appointed public officials have participated in the St. Lucia NIS.
Officials in service before this date continue to contribute to, and will receive benefits from, the civil
service pension scheme.
The NIS is also an important part of the country’s financial system. Due to the relative youth of the
St. Vincent and the Grenadines’ population, the NIS has accumulated reserves in excess of 20 percent of GDP,
which have been mostly invested in domestic public assets (such as government bonds) or deposited at local
banks.2 While limits on foreign asset allocations of NIS reserves may have contributed to the development of
domestic financial markets, it also poses important risks. The growth of NIS reserves in the context of limited
local instruments for investment and restrictions on investment overseas may have created distortions in domestic
financial markets, including by artificially lowering borrowing costs for the government.
As a result, both sides of the balance sheets of local banks are dominated by the public sector. NIS reserves
account for around 20 percent of bank deposits, while close to 25 percent of bank lending is to the public sector.
This leaves local banks highly exposed to the public sector and without adequate diversification in their
portfolios, particularly in an economy vulnerable to exogenous shocks. Finally, the resulting dominance of shortterm fixed income investments also implies that assets are a very poor match for liabilities.3 The duration of NIS
portfolios is much shorter than its long-term liabilities. As a result, changes in interest rates may exacerbate assetliability mismatches.
1
This box draws on T. Rasmussen and S. Roache (2006), “Social Security in the Eastern Caribbean Currency Union,”
Chapter IV of Eastern Caribbean Currency Union: Selected Issues, forthcoming.
2
More than 95 percent of NIS reserves are invested in domestic assets.
3
As of June 2006, 50 percent of NIS reserves were invested in short-term assets.
19
D. Responding to Adverse Shocks
30.
Staff urged the authorities to continue efforts to mitigate the risks related to the
National Commercial Bank (NCB).11 During 2005 and thus far in 2006, the NCB
significantly reduced its nonperforming loans (NPLs), mainly through sales to a publiclyowned asset recovery company (ARC).12 Staff observed that it was unusual that these sales
had been financed by loans from the NCB, but welcomed the ARC’s resolution of these NPLs.
Staff also noted the plans for merging the Development Bank and the NCB, and encouraged
further efforts to strengthen the NCB’s balance sheet and improve its management structure
and internal controls.
31.
Staff recommended that greater efforts be taken to address the weaknesses
identified in the 2004 ECCU Regional FSAP report. Approving the uniform Banking Act
would be a key step in this regard, since it would help foster a strong and sound banking
system capable of supporting growth. While nonbank financial institutions (NBFIs)—the
building society, credit unions, the insurance sector, and the Development Bank—are smaller
in size (although the St. Vincent and the Grenadines Building Society is of systemic
importance to the domestic financial sector), their regulation and supervision needed
strengthening.13 Staff commended the authorities for their plans to consolidate regulation of
insurance companies (presently regulated by the Ministry of Finance and Planning) and
offshore financial institutions (IFSA) under a single agency. The mission also welcomed
approval of the Money Services Business Act, which became operational in April 2006, and
improves accounting and registration of money transfer institutions. The authorities committed
to approve the uniform Banking Act in the final quarter of 2006.
11
St. Vincent and the Grenadines’ banking system consists of two locally-incorporated banks and two foreign
bank branches, and the NCB accounts for about 40 percent of total banking system assets.
12
In FY 2004–05 the NCB sold (at a discount to face value) about 40 percent of its NPLs to an ARC, to which it
extended a loan to finance the purchase. The ARC subsequently recovered sufficient proceeds from the NPLs to
fully repay the NCB loan. While the profitability of local banks dipped in 2004, it has since rebounded
(Figure 4).
13
The St. Vincent and the Grenadines Building Society and the Development Bank account for about 8 percent
and 1 percent of financial system assets, respectively.
20
32.
The current high level of international oil prices has placed a significant strain on
the economy, and the authorities have explored alternate sources of energy. Staff noted
that implementation of the PetroCaribe Agreement with Venezuela (which commenced in
September 2005) has provided some concessional financing of energy imports (LPG cylinders
and diesel). Using grant financing from Venezuela, the authorities are in the process of
Oil Prices
establishing a joint venture company to
(U.S. dollars per barrel)
85
construct government-owned gasoline
storage facilities, enabling the importation of 75
65
gasoline under the PetroCaribe Agreement.
55
The joint venture company will then pay
45
60 percent of the value of gasoline imports,
Spot Prices 1/
35
with the remainder financed by a
concessional loan from Venezuela. The
25
authorities intend to deposit the proceeds
15
2002
2003
2004
2005
2006
2007
2008
from PetroCaribe concessional financing in a
sinking fund (consisting of interest-bearing
assets), and plan to allocate the interest differential between earnings from the sinking fund
and PetroCaribe debt service obligations for social spending.
Futures Prices
(October, 2006)
Futures Prices
(December, 2005)
Futures Prices
(May 2005)
Source: IMF, World Economic Outlook.
1/ Average price of West Texas, Brent and Dubai crude.
St. Vincent and the Grenadines: Implicit Value of
EU Banana Preferences
33.
The erosion of trade preferences for
6
bananas has reduced incomes and
employment prospects for poor rural
5
households. Banana producers are facing a
4
difficult future following the conversion of EU 3
quotas into tariffs in January 2006, as free
2
market banana prices are typically
1
considerably below those available in
0
protected EU markets.14 15 As farmers have
limited alternative employment opportunities,
staff supported the provision of well-targeted social safety nets, including the authorities’ use
of transition measures such as income transfers, retraining programs, noncontributory
pensions, and limited subsidies on agricultural inputs (to encourage diversification into
nonbanana agriculture). However, the mission stressed the need for a transparent mechanism
7
Value of
preferences
(In percent of total
exports of goods
and services, left
scale)
EU export unit
values (In percent
of free market
prices, right scale)
Value of
preferences
(In percent of GDP,
left scale)
1995
1996
1997
1998
Source: Fund staff estimates.
1999
2000
2001
2002
2003
2004
2005
14
The EU has proposed a quota-equivalent tariff of €176 per tonne on non-ACP (Caribbean, African and Pacific)
bananas. The new banana regime also includes a duty-free quota of 775,000 tonnes for ACP bananas. While the
conversion of quotas into tariffs will afford some protection to ACP-banana exporting countries, St. Vincent and
the Grenadines is likely to face strong competition from more efficient African ACP producers.
15
Beginning in 2006, banana production in St. Vincent and the Grenadines had largely switched from
conventional exports to fair trade exports—the price premia on the latter had enabled average export returns in
2006 to broadly remain at pre-2006 levels. See Chapter II of Eastern Caribbean Currency Union: Selected Issues
for a discussion of the nature and impact on St. Vincent and the Grenadines of EU preference erosion.
200
190
180
170
160
150
140
130
120
110
21
for funding these programs—instead of the current practice of using high retail prices of sugar
imported by a public monopoly as the chief funding source—and for the consolidation of
poverty-reduction programs (Box 4).
34.
The European Union (EU) is planning to disburse up to about €11.5 million
during 2006–08, in an effort to assist the transition of the economy away from bananas.
This assistance would be mainly in the form of budget support, and is contingent on the
development of a reform program. The staff suggested that the macroeconomic framework
and reform priorities described above would provide a useful basis for the EU’s budget
support.
35.
The authorities generally agreed with the
mission’s recommendations on easing the
transition of the economy from agriculture to
tourism, but lamented the lack of donor support.
The authorities stated that donor financing for
investment in health, education and social spending
had fallen sharply, just at the time it was most needed.
This lack of donor support had then necessitated
increased borrowing, often on commercial terms, to
finance these much-needed transitional expenditures.
St. Vincent and the Grenadines: EU Banana Support
Amount
Committed
Amount
Disbursed
Percentage
Disbursed
Special Framework of
Assistance
1999
2000
2001
2002
2003
2004
2005
2006
6.2
6.5
6.4
6.1
5.6
5.3
4.5
3.9
4.5
0.4
0.0
1.2
0.2
0.0
0.0
0.0
(In percent)
72.5
5.6
0.0
19.7
3.6
0.0
0.0
0.0
Total
44.6
6.3
14.1
(In € million)
Source: Delegation of the European Commission, Barbados.
36.
St. Vincent and the Grenadines is one of the most disaster-prone countries in the
world. Staff encouraged the authorities to further enhance the country’s disaster preparedness
mechanisms, and welcomed progress on enhancements to disaster management, following
Worldwide Incidence of Natural Disasters, 1970–2005
passage of the Disaster
All Recorded Disasters
Management Act in June
Number of Events
Number of Events
Divided by
Divided by
2006. The National
Number
Land Area
Population
of Events
Index
Rank
Index
Rank
Emergency Response Plan is
All countries
7,963
100
93
100
93
Advanced economies
1,601
10
103
37
113
presently being revised, and
Caribbean
272
631
23
400
29
ECCU
50
784
7
786
7
while the National Building
Antigua and Barbuda
7
679
7
717
6
Dominica
9
512
12
1,037
3
Code has been introduced,
Grenada
6
753
5
467
11
St. Kitts and Nevis
7
829
4
1,210
2
greater efforts are needed to
St. Lucia
9
619
10
451
12
St. Vincent and the Grenadines
12
1,312
2
836
5
ensure enforcement of the
Other Caribbean
222
540
34
168
43
6,090
55
98
77
96
Other
Code. Insurance of
Sources: EM-DAT for data on natural disasters; World Bank, World Development Indicators
data on land area and population.
government assets could also forNote:
The sample contains 184 countries. Simple unweighted averages are used for country groupings.
Rankings are in descending order, with "1" indicating the most exposed to natural disaster.
be improved, as at present
only a small fraction of public buildings and assets are covered. The staff also welcomed the
government’s continued participation in regional initiatives (such as the World Bank’s
Catastrophe Risk Insurance Facility) designed to pool insurance risk across Caribbean
countries, and thereby lower the cost of catastrophe insurance.
22
Box 4. St. Vincent and the Grenadines: Poverty Reduction Strategy
There is a dearth of timely and extensive poverty data for St. Vincent and the Grenadines. The most recent
source of statistical data on the incidence of poverty in St. Vincent and the Grenadines is “The Poverty
Assessment Report” prepared by consultants in 1996. The report states that 37½ percent of the population
(31 percent of households) is below the locally-defined poverty line, and 26 percent of the population (20 percent
of households) is indigent. A study prepared in 2001 on “The Socio-Economic Impact of Restructuring the
Banana Industry” indicates a worsening of the poverty situation as a result of severe shocks to the economy since
1995. To rectify data lacunae regarding poverty and consumption expenditures, the government expects to
conclude a new household survey and poverty assessment by end-2007.
The process of developing a poverty reduction strategy began in September 2001. The government assigned
the responsibility for the development of a Poverty Reduction Framework to the National Economic and Social
Development Council (NESDC), which comprises representatives from government ministries, the ECCB and
other financial institutions, private sector, and civil society groups. A Poverty Reduction Task Force was
established by the NESDC to develop the Poverty Reduction Strategy. The final revision of the Interim Poverty
Reduction Strategy Paper (I-PRSP) was completed in June 2003, and is the only PRSP in the ECCU region
developed by a country that does not have a Fund-supported arrangement. The NESDC is currently developing a
National Development Plan (NDP) of which of the Poverty Reduction Strategy would be a component. The
government plans to review and then revise the I-PRSP by end-2006.
The strategy for poverty reduction adopted by the government follows a multi-faceted approach, which
includes: (i) a job creation program (including the Youth Empowerment Service to address youth
unemployment); (ii) a low-income housing project; (iii) an enhanced safety net for the poor through public
assistance; (iv) the promotion of a micro-enterprise sector; (v) increased subsidies to banana farmers; and
(vi) large new infrastructure projects in roads, airports and power plants.
In order to promote civil society participation in national policy formulation, the NESDC has developed a
“Social Contract” (which has a “Fiscal Covenant”) and a Social Investment Fund. The contract aims at fixing
the general framework for cooperation between government, private sector, and civil society in both policy
formulation and monitoring. The fund, which is an independent quasi-government entity, is financed by
European Union grants (EC$14 million over a three-year period), and will (beginning in 2007) fund social
projects sponsored by local communities.
The main component of the country’s existing social safety net is the public assistance program
administered by the Ministry of Social Development. This program currently assists some 5,000 persons with
a monthly cash stipend of EC$125 for those over 65 years of age, and EC$100 for those less than 65 years.
The World Bank’s 2005 Public Expenditure Review recommends the consolidation of existing public
assistance programs and more transparent targeting. The government currently implements approximately 20
social assistance programs, through at least seven different line ministries and statutory agencies. However, social
programs targeted to the poor are largely overlapping and administratively cumbersome, and are consequently
not well poised to respond to chronic poverty. Government ministries are presently examining ways to reduce
overlap.
23
E. Other Issues
37.
Despite ongoing efforts to enhance statistical databases in St. Vincent and the
Grenadines, weaknesses remain in terms of coverage, timeliness and dissemination of
statistical data. While in areas central to surveillance—notably central government accounts,
indicators of the financial sector and external sector accounts—the data are adequate for
surveillance purposes, information on the rest of the public sector and nonbank financial
intermediaries is limited. The mission also encouraged the authorities to continue to strengthen
the statistical office, in particular by continuing to avail themselves of technical assistance
offered through CARTAC.
IV. STAFF APPRAISAL
38.
The economy of St. Vincent and the Grenadines’ showed encouraging signs of
strength in 2006. Activity is being driven by expansion in construction and tourism-related
services, and by a recovery in weather-affected agricultural production. Prospects for a further
growth pickup in 2007 appear bright, underpinned by improving external competitiveness,
continued expansion in tourism and rising domestic investment.
39.
However, the country’s fiscal imbalances remain worrisome. Under current
policies, debt servicing in 2006 will absorb the equivalent of about 25 percent of current
revenues, and public debt will expand to over 100 percent of GDP by the end of the decade. In
this light, a front-loaded fiscal adjustment is needed to place the debt ratio on a more
sustainable path, increase the fiscal room for maneuver to address poverty alleviation and
social needs, and enable the economy to better cope with adverse shocks. Welcome initiatives
have been taken to achieve some fiscal consolidation in 2006, but further difficult measures
will be needed to sustain and deepen the adjustment over the medium term.
40.
Encouraging steps have already been taken to improve tax policy and
administration, including the planned adoption of the VAT and the recent reduction of
fuel subsidies. While these improvements will support the needed fiscal adjustment, it is still
important for the authorities to remove discretionary tax concessions, and reduce the overall
level of statutory concessions, in order to maintain revenue buoyancy and promote a tax
environment that is more conducive to new investment. In addition, a flexible fuel pricing
mechanism is needed to avoid consumption taxes being contingent on world oil prices.
41.
Success in boosting revenues should not be used to delay the introduction of
stricter spending discipline. It is critical that the authorities prioritize and properly phase
infrastructure-enhancing projects, and fund these with grant financing and highly concessional
loans. In addition, the government’s wage bill, which accounts for about half of all current
expenditures, is among the highest in the ECCU. Staff recommends that growth in the number
of civil servants be strictly limited and wage increases be prudently managed.
24
42.
Staff urges the authorities to seek grants and highly concessional financing for the
proposed new international airport. In addition, staff strongly encourages the government to
undertake an updated economic feasibility study for the airport, given the cost of this project
and its potential impact on the country’s debt position. The study would highlight the costs
and benefits of various potential designs and financing options.
43.
St. Vincent and the Grenadines is one of the most disaster-prone countries in the
world. In recent years the authorities have made strong efforts to bolster national disaster
mitigation and preparedness. Nonetheless, staff recommends that the authorities undertake
greater efforts to transfer or reduce disaster risk, particularly through enhanced insurance of
public buildings, better enforcement of building codes, and continued participation in
arrangements for regional pooling of catastrophe risk insurance.
44.
Staff welcomes efforts by the authorities to reduce vulnerabilities related to the
state-owned National Commercial Bank (NCB) and strengthen financial sector
supervision. In addition to a continuation of ongoing efforts to improve its balance sheet, staff
recommends that the NCB’s management structure be strengthened and its exposure to the
public sector be reduced. Staff urges that NBFIs be more carefully monitored, given their
importance to the domestic financial sector. The authorities’ plans to consolidate regulation
and supervision of NBFIs is also welcomed, as is ongoing efforts to enhance supervision of
the offshore financial sector.
45.
The erosion of trade preferences for bananas is placing considerable pressure on
rural households in St. Vincent and the Grenadines. Staff supports the authorities’ plans to
use temporary measures to ease the transition away from banana production, through income
transfers, retraining programs, noncontributory pensions, and limited subsidies on agricultural
inputs (to encourage diversification into nonbanana agriculture). Staff also notes the
disappointingly large discrepancy between the planned allocation and actual disbursement of
donor funds designed to facilitate the transition of the economy away from banana production.
Nonetheless, it is critical that the government effectively uses planned EU assistance to ease
the transition of the economy away from agriculture, through the development of a reform
program which could be supported by donors and the EU.
46.
Even in the best of circumstances, the economic and fiscal situation of St. Vincent
and the Grenadines remains vulnerable. The debt burden is expected to remain high for
several years, rendering the country vulnerable to adverse economic shocks. Key downside
risks include the potential fiscal and economic impact of additional capital expenditures, the
occurrence of natural disasters, and more rapid erosion of trade preferences for banana
exports. The authorities will need to carefully manage these risks, and respond rapidly to any
changes in the country’s economic environment.
47.
It is recommended that the next Article IV consultation take place on the
standard 12-month cycle.
25
Figure 1. St. Vincent and the Grenadines: Macroeconomic Developments, 1990–2005
(In percent of GDP, unless otherwise denoted)
Exogenous shocks have contributed to volatile growth...
10
Real GDP growth (percentage change)
8
6
4
2
0
-2
-4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
...banana exports have declined dramatically, while tourism has become the main growth
sector...
35
30
25
Tourism Receipts
Banana Exports
FDI
20
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
...and increasing interest payments and capital expenditure have compounded fiscal
deficits.
15
Capital expenditure
(left scale)
Interest Payments
(right scale)
3.5
3.0
2.5
10
2.0
1.5
5
1.0
0.5
0.0
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Sources: St. Vincent and the Grenadines authorities; and Fund staff estimates.
26
Figure 2. St. Vincent and the Grenadines: Fiscal Developments, 1990–2005
(In percent of GDP, unless otherwise denoted)
38
There has been an increase in expenditures since 1997 and a sustained decline in
revenues since 2002...
36
Total expenditure and net lending
34
32
30
Total revenue and grants
28
26
24
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
6
...with persistent and growing fiscal deficits, and the public assumption of a private
external loan in 1999 ...
Overall balance
Primary balance
Debt-stabilizing primary balance
4
2
0
-2
-4
-6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
...leading to a rise in both the public stock of debt and the cost of debt servicing.
90
80
70
60
50
40
30
20
10
0
Public Debt to GDP Ratio
Public Debt Service to Current Revenue Ratio
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Sources: St. Vincent and the Grenadines authorities; and Fund staff estimates.
27
Figure 3. St. Vincent and Grenadines: External Competitiveness, 1990–2006
...private and public sector real wages and
numbers of civil servants have grown.
While the CPI-based real effective exchange rate
has depreciated sharply since 2002...
110
0
105
-5
-10
100
115
110
-15
95
5.5
Number of civil servants
(in thousands, right scale)
Real wage (NIS insurable
earnings, 1997=100, left
scale)
5.0
105
-20
90
85
Real effective
exchange rate
(index, 2000=100),
left scale 1/
80
1991
-25
Current account
balance (in percent of
GDP), right scale
-30
-35
1994
1997
2000
2003
4.5
100
1997
Exports of (non-banana) goods
and nonfactor services
(in percent of GDP, left scale)
50
7
6
48
5
46
1999
2001
2003
55
ODA (in percent
of GDP, period
average, right
scale)
ODA (in millions of
US dollars at 2004
prices, left scale)
Average
1990-99
45
35
25
44
2005
...while overseas development assistance flows
have continued their steady decline since the
early 1990s.
Overall exports have weakened, after growing
rapidly during the early 1990s...
52
4.0
95
2006
4
42
3
38
2
1997
1999
2001
2003
5
1990
1993
1996
1999
0
2002
2005
...while St. Vincent's share of stay-over arrivals in
both the ECCU and the Caribbean has increased
steadily since 1996.
9.5
Competitor-based real effective
exchange rate (index
2000=100) 1/ 2/
2
Average
2000-05
-5
2005
125
115
6
4
In the tourism sector, the competitor- and customerbased measures of the REER have depreciated...
120
8
15
Banana exports
(in percent of GDP, right scale)
40
10
9.0
0.50
Share of ECCU arrivals (in
percent, left scale)
0.45
8.5
110
105
8.0
100
7.5
0.40
95
7.0
Customer-based real effective
exchange rate (index 2000=100) 1/
90
85
80
1991
Share of Caribbean arrivals (in
percent, right scale)
6.5
0.30
6.0
1994
1997
2000
2003
2006
0.35
1995
1997
1999
2001
2003
2005
Sources: ECCB, Caribbean Tourism Organization, St. Vincent and the Grenadines authorities, and
Fund staff calculations.
1/ An increase (decrease) indicates an appreciation (depreciation).
2/ The sharp movements in the competitor-based real exchange rate in 2002-04 were largely driven
by the Dominican Republic's peso.
28
Figure 4. St. Vincent and the Grenadines: Banking System Developments, 2000–06 1/
Foreign banks have been reducing excess liquidity and have
become more profitable than local banks since 2003.
Since 2003, both lending and deposit rates have fallen, but
spreads have remained broadly unchanged.
12
4.0
50
10
3.5
45
3.0
40
2.5
35
6
2.0
30
4
1.5
25
1.0
20
0.5
15
8
2
0
10
0.0
2000
2001
2002
2003
2004
2005
Deposit rates (12-month moving average)
Aug-06
2000
2001
2002
2003
2004
2005
Return on avg. assets (local banks, left axis)
Return on avg. assets (foreign banks, left axis)
Liquid assets/total assets (local banks, right axis)
Liquid assets/total assets (foreign banks, right axis)
Lending rates (12-month moving average)
60
Household loans dominate the lending portfolio (both for
foreign and local banks).
Nonperforming loans in local banks have decreased considerably
since 2003, while provisioning has risen.
20
140
18
120
16
100
14
50
40
12
10
8
6
4
2
0
30
20
10
0
2000
2001
2002
2003
2004
2005
Loans to households/total loans
Loans to tourism sector/total loans
Loans to agriculture sector/total loans
80
60
40
20
0
2000
Sep-06
2001
2002
2003
2004
2005 Sep-06
NPLs/total loans for local banks (left axis)
NPLs/total loans for foreign banks (left axis)
Provisioning/NPLs for local banks (right axis)
Provisioning/NPLs for foreign banks (right axis)
Government exposure and government deposits remain high for
local banks, rendering the banking system vulnerable to
impairment of government obligations.
30
40 25
Capital adequacy ratios in local banks have steadily
increased since 2003 to near the ECCU average.
35
25
30
20
25
20
15
20
15
15
10
10
5
5
0
0
2000
2001
2002
2003
2004
2005
Sep-06
Govn't exposures/total assets for local banks (left axis)
Govn't exposures/total assets for foreign banks (left axis)
Govn't deposits/total deposits for local banks (right axis)
Govn't deposits/total deposits for foreign banks (right axis)
10
5
0
2000
2001
2002
2003
2004
2005
Sep-06
Total capital as share of risk-weighted assets, local
banks
Total capital as a share of risk-weighted assets, local
banks, ECCU average
Sources: ECCB; and St. Vincent and the Grenadines authorities.
1/ Prudential indicators are based on commercial banks' own reporting, with infrequent on-site
verification by the ECCB.
29
Figure 5. St. Vincent and the Grenadines: Governance and Business Indicators, 2005–06
IDA Resource Allocation Index, 2005 Ratings 1/
World Governance Indicators, 2005 Percentile Rank (0-100)
St.
Vincent
&
Antigua
St. Kitts
& Barb. Dominica Grenada & Nevis St. Lucia Grens.
Voice and accountability
62
86
72
73
81
81
Political stability
Government
effectiveness
72
83
62
94
87
88
68
71
63
79
84
83
Regulatory quality
68
71
63
84
84
84
Rule of law
72
68
59
76
76
76
Control of corruption
75
72
72
81
84
St.
Vincent
Dominica Grenada St. Lucia & Grens. Guyana Haiti
81
160
Economic management
3.7
3.2
4.0
4.0
3.5
3.0
Structural policies
4.2
4.0
4.2
4.2
3.5
3.2
Policies for social
inclusion/equity
3.7
3.9
3.8
3.8
3.3
2.6
Public sector management
and institutions
3.6
3.7
3.9
3.7
3.1
2.3
Overall IDA resource
allocation index (IRAI) 2/
3.8
3.7
4.0
3.9
3.4
2.8
60
Rankings, 2006 3/
Rankings,
2006 3/
140
120
Starting a
business
100
Closing a
business
50
Dealing with licenses
Employing workers
40
30
80
60
20
40
10
20
0
0
Antigua &
Barb.
Dominica
Grenada
St. Kitts &
Nevis
St. Lucia
Antigua &
Barb.
St. Vincent
& Grens.
Dominica
Grenada
St. Kitts &
Nevis
St. Lucia
St. Vincent &
Grens.
160
160
140
140
Overall ease of Doing Business, 2006 3/
0
0
G
uy
a
Su
&
itt
s
St
.K
om
in
D
Be
Tr
in
.&
en
t&
St
.V
in
c
&
uc
ia
ua
An
tig
St
.L
EC
C
ar
C
ib
U
be
an
/L
at
.A
m
.
20
O
EC
D
20
na
40
rin
am
e
40
N
ev
.
60
G
re
na
da
60
ic
a
80
To
b.
80
liz
e
100
Ja
m
ai
ca
100
G
re
n.
120
Ba
rb
.
120
Sources: World Bank, "Governance Matters V: Governance Indicators for 1996-2005"; World Bank, International
Development Association (IDA); and "Doing Business," World Bank.
1/ Ratings scale: 1 = lowest, 6 = highest.
2/ Overall rating is calculated as the mean of the score of the four categories.
3/ "Doing Business" indicators: rank out of 175 economies, where 1 signifies most conducive and 175 least conducive.
30
Figure 6. St. Vincent and the Grenadines: Public Debt Sustainability: Bound Tests 1/
(Public debt in percent of GDP)
Baseline and historical scenarios
Interest rate shock (in percent)
110
17
Gross financing need under
baseline (right scale)
100
15
110
Baseline:
Scenario:
2.7
3.5
Historical: 3.1
100
13
90
Historical
11
Baseline
80
9
90
i-rate
shock
80
Baseline
7
70
60
2001
5
2003
2005
2007
3
2011
2009
70
60
2001
2007
2009
2011
110
110
Baseline: 5.5
Scenario: 4.5
100
Historical:
100
3.1
Growth
shock
90
80
No policy change
Baseline: -4.4
Scenario: -5.9
Historical: 0.4
90
PB shock
80
Baseline
Baseline
70
70
2003
2005
2007
2009
2011
60
2001
Combined shock 2/
110
110
100
100
90
2003
2005
2007
30 %
depreciation
80
Baseline
2009
2011
Real depreciation and contingent
liabilities shock 3/
90
Combined
shock
80
contingent
liabilities
shock
Baseline
70
70
60
2001
2005
Primary balance shock (in percent of GDP) and
new capital projects scenario
Growth shock (in percent per year)
60
2001
2003
2003
2005
2007
2009
2011
60
2001
2003
2005
2007
2009
2011
Sources: International Monetary Fund, Country desk data, and staff estimates.
1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks.
Figures in the boxes represent average projections for the respective variables in the baseline and scenario
being presented. Ten-year historical average for the variable is also shown.
2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.
3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2006,
with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local
currency) minus domestic inflation (based on GDP deflator).
31
Table 1. St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2001–07
Social and Demographic Indicators
Area (sq. km)
389.0
Population
Adult illiteracy rate (percent, 2001)
11.0
Health and nutrition
Total (thousands, 2006)
Rate of growth (percent per year, 2001)
Density (per sq. km., 2006)
106.8
0.01
274.6
Population characteristics (2004)
Life expectancy at birth (years)
Infant mortality (per thousand live births)
71.3
18.0
Under 5 mortality rate (per thousand)
22.0
Calorie intake (per capita a day, 2004)
Population per physician (thousand, 1997)
AIDS incidence rate (per 100,000, 2004)
2,660
1.1
99
Gross domestic product (2006)
(millions of US dollars)
(millions of EC dollars)
466
1,258
(US$ per capita)
2001
4,364
2002
2003
2004
Est.
2005
Proj.
2006
Proj.
2007
(Annual percentage change, unless otherwise specified)
Output and prices
Real GDP (factor cost)
Nominal GDP (market prices)
-0.1
3.1
3.2
5.8
2.8
4.6
6.8
6.7
2.2
5.5
4.1
8.3
5.5
8.9
Consumer prices, end of period
Consumer prices, period average
-0.6
0.8
0.4
0.8
2.7
0.2
1.7
3.0
3.9
3.7
4.5
3.2
3.5
3.9
Real effective exchange rate (- = depreciation)
External terms of trade (- = deterioration)
-0.1
2.9
-5.4
2.6
-5.9
-4.9
-4.6
0.0
4.9
-4.3
..
0.6
...
-2.1
-4.1
7.2
2.9
5.4
5.7
-3.9
15.7
-2.0
-4.6
11.0
1.4
6.9
1.9
6.9
2.1
4.3
0.6
0.8
4.3
1.7
2.9
30.7
32.8
27.7
31.7
34.0
28.0
31.3
34.7
26.7
30.0
33.6
26.3
30.5
36.1
27.8
31.1
35.4
27.7
31.7
34.3
26.7
14.2
2.6
14.5
2.6
13.5
2.7
13.3
2.5
13.7
3.0
13.3
3.9
12.8
3.4
Capital expenditure
Overall balance (cash basis) 2/
Of which
5.0
-2.1
6.4
-4.2
7.9
-3.3
7.2
-3.6
8.3
-5.6
7.6
-4.2
7.6
-2.6
Current balance (savings)
Primary balance (after grants)
1.0
0.5
2.6
-1.6
4.1
-0.6
2.9
-1.1
1.2
-2.6
1.9
-0.4
3.6
0.8
14.1
65.5
14.0
68.3
14.7
67.8
19.3
70.4
21.3
72.1
24.9
70.8
23.9
67.6
-0.6
2.3
8.7
-5.8
-3.1
10.0
-3.0
-0.3
10.0
-6.4
-3.4
13.1
-7.3
-3.6
13.0
-9.1
-4.5
17.1
-5.9
-1.3
17.3
-10.5
-11.5
-20.8
-25.1
-24.0
-24.5
-24.9
Exports of goods and services
Imports of goods and services
Stayover arrivals (percentage change)
50.9
60.2
-3.0
48.8
58.8
9.8
45.2
63.1
1.2
45.2
66.7
10.4
44.4
64.7
9.5
45.3
65.3
5.0
44.8
65.8
7.0
Public sector external debt (end of period)
49.1
46.5
50.9
54.1
54.7
53.3
50.7
External public debt service
In percent of exports of goods and services
In percent of central government revenue before grants
6.7
11.8
6.5
10.3
7.3
10.7
10.0
15.4
11.5
17.6
13.0
19.9
12.5
18.4
Banking system
Net foreign assets 1/
Net domestic assets 1/
Of which
Credit to private sector 1/
(In percent of GDP, unless otherwise specified)
Central government finances
Total revenue and grants
Total expenditure and net lending
Current expenditure
Of which
Wages and salaries
Interest
Debt service in percent of current revenues
Central government debt 3/
Public sector overall balance 4/
Public sector primary balance 4/
Public sector investment 4/
External sector
External current account
Of which
Memorandum items:
Average interest rate on the domestic public debt (in percent per annum)
6.7
6.8
6.8
6.6
6.7
7.2
7.2
Average interest rate on the external public debt (in percent per annum)
Gross public sector debt 3/ 4/
Nominal GDP at market prices (in millions of E.C. dollars)
3.2
68.2
933
2.7
70.5
987
2.4
72.3
1,032
2.7
78.1
1,101
3.4
81.6
1,161
4.6
84.5
1,258
3.6
83.5
1,370
Nominal GDP at factor cost (in millions of E.C. dollars)
Nominal GDP at market prices (in millions of U.S. dollars)
Share of ECCU stayover visitors
777
345
8.3
817
365
9.4
852
382
8.3
931
408
8.3
972
430
9.1
1045
466
...
1145
507
...
Sources: Eastern Caribbean Central Bank, Ministry of Finance and Planning; Banana Growers' Association, and Fund staff estimates and projections.
1/ Annual changes relative to the stock of broad money at the beginning of the period.
2/ Includes the difference between the overall balance as measured from above the line and from below the line (i.e., financing), which may include float and unidentified discrepancies.
3/ Net of intra-public sector debt (mainly central government debt to the NIS).
4/ The consolidated public sector includes the central government, the National Insurance Services (NIS), Kingstown Board, and 10 nonfinancial public enterprises.
0
0
0
0
50.4
22.3
22.9
0
0
-39
1
46
65
19
2
-15
34
-7
-34
-34
0
42
11
61
48
82
0
358
276
139
28
324
318
260
127
133
58
1
5
2003
50.6
23.0
21.6
0
0
-41
0
71
105
35
2
-33
39
-12
-39
-39
0
32
14
67
49
80
0
370
290
147
28
331
322
274
136
138
48
1
8
2004
1/ Excluding land sales for the International Airport Development Corporation (IADC) from 2006 on.
2/ Salaries and wages including social security contributions, commissions, rewards, allowances, and incentives.
3/ Mainly contributions to households and international organizations.
4/ The difference between the overall balance as measured from above the line and from below the line.
51.7
23.2
18.8
42
1
-18
1
51.2
20.5
15.3
3
20
16
0
37
33
46
13
0
-14
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.
Memorandum items:
Wage and salaries as a proportion of recurrent expenditures
Goods and services as a proportion of recurrent expenditures
Capital expenditure as a proportion of total expenditures
Net external financing
Disbursements
Amortization
Change in government foreign assets
Net domestic financing
Of which
Banking system
Exceptional financing
Financing related to the International Airport
Land Sales
Transfers to the IADC
41
-15
20
5
Identified financing
-41
-20
Overall balance (cash basis)
Of which
Primary balance
26
-23
19
-19
0
Overall balance
Other 4/
9
11
64
43
63
-4
13
53
49
47
0
Current balance (before grants)
336
276
143
26
305
259
132
25
Total expenditure and net lending
Current
Wages and salaries 2/
Interest
Of which
Foreign interest
Goods and services
Transfers 3/
Capital expenditure
Net lending
313
302
260
133
127
42
1
11
286
268
231
119
112
38
1
17
2002
Total revenue and grants
Current revenue
Tax
Nontrade tax
International trade
Nontax
Capital revenue (land sales only) 1/
Grants
2001
(In millions of Eastern Caribbean dollars)
49.3
21.1
23.1
0
0
69
0
37
74
37
0
28
65
-30
-65
-65
0
14
20
68
61
97
0
419
322
159
35
354
336
308
166
142
28
1
17
Est.
2005
47.8
22.0
21.6
17
-17
40
0
6
50
44
0
48
53
-5
-53
-53
0
24
30
77
57
96
0
445
349
167
49
391
373
342
184
159
30
1
18
Active
2006
47.9
22.8
22.1
41
-41
43
0
-10
42
52
0
46
36
11
-36
-36
0
49
25
84
60
104
0
470
366
175
47
434
415
382
207
175
33
1
18
Active
2007
Table 2. St. Vincent and the Grenadines: Summary of Central Government Operations, 2001–11
46.8
23.5
22.4
43
-43
45
0
-14
42
56
0
32
18
33
-18
-18
0
76
25
92
65
113
0
502
390
182
51
484
465
429
231
198
36
1
18
45.7
23.9
22.7
12
-12
37
0
-24
42
66
0
37
13
42
-13
-13
0
91
26
100
71
123
0
540
417
191
55
527
508
468
252
216
40
1
18
Proj.
Active
Active
2008
2009
44.8
24.1
22.9
13
-13
45
0
-27
42
69
0
39
12
50
-12
-12
0
102
29
108
77
133
0
582
448
201
62
569
550
508
273
234
43
1
18
Active
2010
44.3
24.2
22.9
0
0
35
0
-28
42
70
0
42
14
55
-13
-13
0
111
30
116
82
143
0
621
479
212
68
608
589
544
293
251
46
1
18
Active
2011
32
33
Table 3. St. Vincent and the Grenadines: Summary of Central Government Operations, 2001–11
(In percent of GDP, unless otherwise stated)
2001
Total revenue and grants
2002
2003
2004
Est.
2005
Active
2006
Active
2007
Projections
Active
Active
2008
2009
Active
2010
Active
2011
30.7
31.7
31.3
30.0
30.5
31.1
31.7
32.3
32.2
32.1
32.0
28.7
24.7
12.7
12.0
4.0
0.1
1.9
30.6
26.3
13.5
12.8
4.3
0.1
1.1
30.8
25.2
12.3
12.9
5.7
0.1
0.4
29.2
24.9
12.4
12.6
4.3
0.1
0.7
29.0
26.5
14.3
12.3
2.4
0.1
1.5
29.6
27.2
14.6
12.6
2.4
0.1
1.4
30.3
27.9
15.1
12.8
2.4
0.1
1.3
31.0
28.6
15.4
13.2
2.4
0.1
1.2
31.0
28.6
15.4
13.2
2.4
0.1
1.1
31.0
28.6
15.4
13.2
2.4
0.0
1.0
31.0
28.6
15.4
13.2
2.4
0.0
0.9
32.8
34.0
34.7
33.6
36.1
35.4
34.3
33.5
33.0
32.8
32.7
27.7
14.2
2.6
28.0
14.5
2.6
26.7
13.5
2.7
26.3
13.3
2.5
27.8
13.7
3.0
27.7
13.3
3.9
26.7
12.8
3.4
26.0
12.2
3.4
25.5
11.7
3.4
25.3
11.3
3.5
25.2
11.2
3.6
1.3
5.7
5.2
5.0
0.0
1.1
6.5
4.4
6.4
-0.4
1.1
6.0
4.6
7.9
0.0
1.3
6.1
4.5
7.2
0.0
1.7
5.8
5.2
8.3
0.0
2.4
6.1
4.5
7.6
0.0
1.8
6.1
4.4
7.6
0.0
1.7
6.1
4.3
7.5
0.0
1.6
6.1
4.3
7.5
0.0
1.6
6.1
4.3
7.5
0.0
1.6
6.1
4.3
7.5
0.0
1.0
2.6
4.1
2.9
1.2
1.9
3.6
5.1
5.5
5.7
5.8
Overall balance (above the line)
Other 3/
-2.0
0.0
-2.3
1.9
-3.3
0.0
-3.6
0.0
-5.6
0.0
-4.2
0.0
-2.6
0.0
-1.2
0.0
-0.8
0.0
-0.7
0.0
-0.7
0.0
Overall balance (cash basis)
-2.1
-4.2
-3.3
-3.6
-5.6
-4.2
-2.6
-1.2
-0.8
-0.7
-0.7
0.5
-1.6
-0.6
-1.1
-2.6
-0.4
0.8
2.2
2.6
2.8
2.9
2.1
3.5
4.9
1.4
0.0
-1.5
4.2
0.3
2.0
1.6
0.0
3.7
3.3
4.5
6.3
1.8
0.2
-1.5
3.6
6.4
9.6
3.1
0.2
-3.0
5.6
3.2
6.4
3.2
0.0
2.4
4.2
0.4
4.0
3.5
0.0
3.8
2.6
-0.8
3.1
3.8
0.0
3.4
1.2
-0.9
2.8
3.7
0.0
2.1
0.8
-1.4
2.6
4.0
0.0
2.3
0.7
-1.5
2.4
3.9
0.0
2.2
0.7
-1.5
2.2
3.7
0.0
2.2
-1.9
0.1
4.3
0.1
-3.8
0.1
-3.7
0.0
5.9
0.0
3.2
0.0
3.2
0.0
3.0
0.0
2.3
0.0
2.6
0.0
1.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.3
-1.3
3.0
-3.0
2.9
-2.9
0.7
-0.7
0.7
-0.7
0.0
0.0
65.5
68.2
14.1
933
68.3
70.5
14.0
987
67.8
72.3
14.7
1,032
70.4
78.1
19.3
1,101
72.1
81.6
21.3
1,161
70.8
84.5
24.9
1,258
67.6
83.5
23.9
1,370
62.9
80.7
22.9
1,501
58.5
78.0
23.8
1,638
54.6
76.8
23.9
1,775
51.8
75.8
23.4
1,901
Current revenue
Tax
Nontrade tax
International trade
Nontax
Capital revenue (land sales only) 1/
Grants
Total expenditure and net lending
Current
Wages and salaries 2/
Interest
Of which
Foreign interest
Goods and services
Transfers 3/
Capital expenditure
Net lending
Current balance (before grants)
Of which
Primary balance
Identified financing
Net external financing
Disbursements
Amortization
Change in government foreign assets
Net domestic financing
Of which
Banking system
Exceptional financing
Financing related to the International Airport
Land Sales
Transfers to the IADC
Memorandum items:
Gross central government debt (in percent of GDP)
Public sector debt (in percent of GDP) 5/
Debt service as a proportion of current revenues 6/
GDP at market prices (EC$ millions)
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.
1/ Excluding land sales for the International Airport Development Corporation (IADC) from 2006 on.
2/ Salaries and wages including social security contributions, commissions, rewards, allowances, and incentives.
3/ Mainly contributions to households and international organizations.
4/ The difference between the overall balance as measured from above the line and from below the line.
5/ Net of intra-public sector debt (mainly central government debt to the NIS).
6/ Debt service excludes domestic debt amortization.
34
Table 4. St. Vincent and the Grenadines: Balance of Payments Summary, 2001–11 (Active Scenario)
2001
2002
2003
2004
Est.
2005
2006
2007
Projections
2008
2009
2010
2011
(In millions of Eastern Caribbean dollars)
Current account
-97
-113
-215
-277
-279
-308
-341
-389
-416
-420
-390
-295
115
-315
111
-369
108
-431
106
-437
112
-471
131
-529
133
-604
138
-664
144
-707
153
-727
165
37
46
43
40
32
37
35
39
32
42
40
47
38
48
38
48
38
49
37
51
38
54
Imports f.o.b.
410
426
477
537
549
602
662
742
808
860
892
Services (net)
Credits
Travel
Other nonfactor services
Debits
Travel
Other nonfactor services
208
360
240
119
151
27
125
216
370
246
124
154
27
127
184
358
246
112
174
34
140
194
392
258
134
198
39
159
201
404
273
132
203
40
163
219
439
295
145
220
43
177
240
480
328
153
240
47
193
267
533
370
162
265
51
214
302
591
419
172
289
56
233
344
654
472
182
310
61
250
396
724
532
191
328
65
263
Income payments (net)
Current transfers
Net private transfers
Net official transfers
-45
34
35
-1
-48
33
35
-2
-64
35
38
-3
-78
38
39
-1
-82
39
40
-1
-100
43
45
-1
-101
49
50
-1
-107
55
56
-1
-115
61
62
-1
-124
67
68
-1
-132
73
74
-1
Capital and financial account
Capital
Financial (net)
Official capital
Commercial banks
Private capital
Of which
Net direct investment
158
24
134
38
43
53
70
29
41
6
-41
77
171
39
132
-3
-46
182
302
51
251
37
-49
263
268
58
210
51
23
136
308
97
210
35
-13
188
346
53
293
25
-13
281
386
134
252
25
-1
228
415
125
290
19
-9
280
421
98
323
21
-1
303
391
72
319
23
-8
304
57
92
149
177
90
121
185
185
174
178
183
Errors and omissions
-53
26
42
44
3
0
0
0
0
0
0
8
-18
-1
69
-8
-1
5
-3
-1
1
1
-8
0
-8
0
18
22
-5
0
1
6
-4
0
-69
-64
-4
0
8
15
-7
0
1
1
0
0
-5
-5
0
0
3
3
0
0
1
1
0
0
-1
-1
0
0
-1
-1
0
0
Trade balance
Exports f.o.b.
Of which
Bananas
Manufactured exports
Overall balance
Financing
Change in imputed reserves (increase -)
Change in govt. foreign assets
Other financing (interest moratorium)
(In percent of GDP)
Memorandum items:
Current account
Exports f.o.b.
Imports f.o.b.
Net private transfers
Foreign direct investment
Indicators of diversification
(In percent of exports of goods and
nonfactor services)
Banana exports
Tourism receipts
Tourism receipts
Total trade
Exports of goods and nonfactor services
Imports of goods and nonfactor services
-10.4
12.4
44.0
3.8
6.1
-11.5
11.3
43.2
3.5
9.3
-20.8
10.5
46.2
3.6
14.4
-25.1
9.6
48.8
3.5
16.1
-24.0
9.6
47.3
3.5
7.7
-24.5
10.4
47.8
3.5
9.6
-24.9
9.7
48.3
3.6
13.5
-25.9
9.2
49.4
3.7
12.3
-25.4
8.8
49.4
3.8
10.6
-23.7
8.6
48.5
3.9
10.0
-20.5
8.7
46.9
3.9
9.6
7.8
50.6
25.8
8.9
51.0
24.9
6.9
52.8
23.8
7.1
51.8
23.4
6.2
52.8
23.5
6.9
51.7
23.4
6.1
53.4
23.9
5.6
55.2
24.7
5.1
57.0
25.6
4.6
58.5
26.6
4.2
59.9
28.0
56.4
50.9
60.2
54.5
48.8
58.8
56.7
45.2
63.1
58.4
45.2
66.7
56.9
44.4
64.7
58.2
45.3
65.3
58.0
44.8
65.8
58.6
44.7
67.1
58.2
44.9
67.0
57.1
45.5
66.0
55.6
46.8
64.2
Sources: Ministry of Finance and Planning; ECCB; and Fund staff estimates and projections.
35
Table 5. St. Vincent and the Grenadines: Monetary Survey, 2001–07
2001
2002
2003
2004
2005
Proj.
2006
Proj.
2007
(In millions of Eastern Caribbean dollars)
Net foreign assets
ECCB (imputed reserves)
Commercial banks
Net domestic assets
Public sector credit (net)
Central government
ECCB
Commercial banks
Net credit to rest of public sector
National Insurance Services
Other
Credit to private sector
Net credit to nonbank financial institutions
Other items (net)
Broad money
Money
Currency in circulation
Demand deposits
Quasi-money
Time deposits
Savings deposits
Foreign currency deposits
254
164
90
273
142
131
313
136
177
427
200
226
389
186
203
401
185
216
419
190
229
401
-77
44
8
36
-121
-139
18
605
-60
-68
436
-46
86
12
74
-132
-141
9
633
-54
-98
409
-74
47
24
23
-121
-137
16
637
-56
-99
395
-54
6
-31
37
-60
-100
40
643
-23
-171
485
8
74
-13
87
-67
-82
15
678
-32
-169
546
50
114
-12
126
-64
-85
21
693
-28
-170
611
90
158
-11
168
-68
-89
21
721
-30
-169
655
219
52
168
436
143
285
8
709
239
54
185
470
156
304
10
722
254
57
197
469
137
321
10
821
287
64
223
534
124
384
26
874
328
74
253
546
101
430
15
947
355
81
274
592
110
466
16
1031
386
88
299
644
120
507
17
14.9
-6.3
0.6
1.9
6.1
-0.3
36.2
-3.5
0.9
13.7
13.1
14.0
-8.9
22.9
5.5
6.4
14.2
2.2
3.1
12.5
2.2
8.3
8.3
8.3
4.6
12.0
4.0
8.9
8.9
8.9
(Annual percentage change)
Net foreign assets
Net domestic assets
Credit to private sector
Broad money
Money
Quasi-money 1/
-9.4
12.8
2.3
3.0
3.3
2.9
7.4
8.9
4.6
8.3
9.1
7.9
(Percent contribution compared to M2 at the beginning of the year)
Net foreign assets
Net domestic assets
Public sector credit (net)
Of which
Central government
Credit to private sector
Net credit to nonbank financial institutions
Other items (net)
Memorandum items:
Income velocity of M2
Deposit interest (average rate per annum)
Lending interest rate (average rate per annum)
Foreign currency deposits/GDP (in percent)
Broad money/GDP (in percent)
-4.1
7.2
0.3
2.9
5.4
4.8
5.7
-3.9
-4.0
15.7
-2.0
2.7
-4.6
11.0
7.6
1.4
6.9
4.9
1.9
6.9
4.2
-2.9
2.1
-3.5
8.3
6.4
4.3
0.9
-4.6
-5.5
0.6
-0.3
-0.2
-5.7
0.8
4.5
-10.0
8.3
4.3
-1.1
0.3
4.6
1.7
0.5
-0.1
4.6
2.9
-0.2
0.1
1.4
4.6
11.6
0.8
70.2
1.4
4.4
11.6
1.0
71.9
1.4
4.6
11.8
1.0
70.0
1.3
3.3
9.7
2.4
74.6
1.3
2.9
9.4
1.3
75.3
1.4
…
…
1.2
69.1
1.5
…
…
1.2
68.7
Sources: ECCB; Ministry of Finance and Planning; and Fund staff estimates.
1/ Including resident foreign currency deposits.
36
Table 6. St. Vincent and the Grenadines: Medium-Term Projections, 2001–11
(In percent of GDP, unless otherwise specified)
2001
2002
2003
2004
Est.
2005
2006
2007
Projections
2008
2009
2010
2011
I. Current Policies Scenario
Output and prices
Real GDP growth at factor cost (percent change)
Consumer prices, end-of-period (percent change)
Nonfinancial public sector
Central government
Total revenue and grants
Total expenditure and net lending
Of which
Wages and salaries
Interest
Capital expenditure
Overall balance (cash basis)
Of which
Primary balance
Gross public sector debt 1/ 2/
Public sector overall balance 1/
Public sector primary balance 1/
-0.1
-0.6
3.2
0.4
2.8
2.7
6.8
1.7
2.2
3.9
4.1
4.5
5.3
3.5
6.0
3.8
5.4
3.6
4.8
3.5
4.2
3.3
30.7
32.8
31.7
34.0
31.3
34.7
30.0
33.6
30.5
36.1
30.8
37.3
30.5
36.5
30.2
36.1
30.2
35.8
30.1
35.5
30.1
35.4
14.2
2.6
5.0
-2.1
14.5
2.6
6.4
-4.2
13.5
2.7
7.9
-3.3
13.3
2.5
7.2
-3.6
13.7
3.0
8.3
-5.6
14.2
3.9
8.0
-6.4
13.8
3.7
8.1
-6.0
13.3
3.7
8.2
-5.9
12.6
3.9
8.3
-5.6
12.2
4.2
8.3
-5.4
11.9
4.3
8.3
-5.3
0.5
-1.6
-0.6
-1.1
-2.6
-2.5
-2.3
-2.1
-1.7
-1.2
-1.1
68.2
-0.6
2.3
70.5
-5.8
-3.1
72.3
-3.0
-0.3
78.1
-6.4
-3.4
81.6
-7.3
-3.6
86.7
-11.0
-6.3
89.0
-8.9
-4.2
96.0
-14.6
-9.9
101.4
-13.0
-8.1
105.3
-11.2
-6.3
107.2
-8.6
-3.8
II. Active Scenario
Output and prices
Real GDP growth at factor cost (percent change)
-0.1
3.2
2.8
6.8
2.2
4.1
5.5
6.3
5.9
5.3
4.8
Consumer prices, end-of-period (percent change)
-0.6
0.4
2.7
1.7
3.9
4.5
3.5
3.8
3.6
3.5
3.3
Saving and investment
Gross domestic investment
Public 1/
Private
29.3
8.7
20.7
32.1
10.0
22.1
36.8
10.0
26.8
39.1
13.1
26.1
39.0
13.0
26.0
40.5
17.1
23.4
42.4
17.3
25.0
44.4
20.3
24.1
44.9
19.0
25.9
43.7
17.8
25.9
41.3
15.5
25.9
Gross national saving
Public
Private
18.8
4.5
14.3
20.7
5.8
14.8
16.1
6.5
9.6
14.0
5.9
8.1
15.0
4.2
10.8
16.0
3.6
12.4
17.5
3.2
14.3
18.5
4.6
13.9
19.5
7.1
12.4
20.0
7.3
12.7
20.8
8.1
12.7
30.7
32.8
31.7
34.0
31.3
34.7
30.0
33.6
30.5
36.1
31.1
35.4
31.7
34.3
32.3
33.5
32.2
33.0
32.1
32.8
32.0
32.7
14.2
2.6
5.0
-2.1
14.5
2.6
6.4
-4.2
13.5
2.7
7.9
-3.3
13.3
2.5
7.2
-3.6
13.7
3.0
8.3
-5.6
13.3
3.9
7.6
-4.2
12.8
3.4
7.6
-2.6
12.2
3.4
7.5
-1.2
11.7
3.4
7.5
-0.8
11.3
3.5
7.5
-0.7
11.2
3.6
7.5
-0.7
Nonfinancial public sector
Central government
Total revenue and grants
Total expenditure and net lending
Of which
Wages and salaries
Interest
Capital expenditure
Overall balance (cash basis)
Of which
Primary balance
Gross public sector debt 1/ 2/
Gross public sector debt 1/
Public sector overall balance 1/
Public sector primary balance 1/
External sector
External current account
Gross public sector external debt (end of period)
External public debt service
(In percent of exports of goods and services)
(In percent of central government revenue before grants)
0.5
-1.6
-0.6
-1.1
-2.6
-0.4
0.8
2.2
2.6
2.8
2.9
68.2
69.6
-0.6
2.3
70.5
71.9
-5.8
-3.1
72.3
74.3
-3.0
-0.3
78.1
80.3
-6.4
-3.4
81.6
83.9
-7.3
-3.6
84.5
86.5
-9.1
-4.5
83.5
85.4
-5.9
-1.3
80.7
82.4
-4.5
-0.1
78.0
79.6
-4.1
0.3
76.8
78.3
-4.8
-0.3
75.8
77.1
-4.1
0.5
-10.5
-11.5
-20.8
-25.1
-24.0
-24.5
-24.9
-25.9
-25.4
-23.7
-20.5
49.1
46.5
50.9
54.1
54.7
53.3
50.7
48.0
45.1
42.8
41.2
6.7
11.8
6.5
10.3
7.3
10.7
10.0
15.4
11.5
17.6
13.0
19.9
12.5
18.4
11.9
17.0
12.1
17.5
11.7
17.1
10.7
16.1
Source: Fund staff projections.
1/ The consolidated public sector includes the central government, the National Insurance Services (NIS), Kingstown Board, and ten nonfinancial public enterprises.
2/ Net of intra-public sector debt (mainly central government debt to the NIS).
37
Table 7. St. Vincent and the Grenadines: Public Sector Debt, 2001–05 1/
2002
2003
Est.
2004
Est.
2005
636
179
192
695
237
252
746
220
242
860
264
288
948
313
339
11
154
27
12
189
50
8
145
89
8
182
98
8
182
149
48
72
60
12
48
138
60
6
48
89
60
45
48
89
90
60
48
89
90
112
458
458
526
596
635
81
182
195
70
198
191
79
201
246
83
203
311
88
216
331
70.5
24.0
46.5
72.3
21.3
50.9
78.1
24.0
54.1
81.6
26.9
54.7
230.4
78.5
151.9
234.4
69.3
165.2
267.2
82.0
185.2
281.8
92.9
188.9
46
19
...
19
27
15
12
51
22
...
22
29
17
12
67
35
...
35
33
18
15
81
38
...
38
42
21
21
4.8
2.9
1.9
4.7
2.8
1.9
4.9
2.8
2.2
6.1
3.0
3.1
6.9
3.6
3.3
16.6
9.4
6.8
15.4
9.6
6.5
16.0
10.9
7.1
20.9
13.5
8.2
24.0
15.6
9.2
4.9
2.7
2.0
5.0
3.1
2.1
5.3
3.6
2.3
5.5
3.5
2.1
6.3
4.1
2.4
11.8
6.7
4.8
10.3
6.5
4.4
10.7
7.3
4.7
15.4
10.0
6.1
17.6
11.5
6.8
100.0
29.5
7.3
11.1
9.2
1.8
70.5
12.4
28.1
30.0
100.0
35.4
6.7
19.4
8.5
0.8
64.6
9.9
27.8
26.9
100.0
31.5
6.3
11.6
7.8
5.8
68.5
10.3
26.2
32.0
100.0
32.5
5.4
9.4
10.2
7.6
67.5
9.4
22.9
35.2
100.0
34.8
4.9
9.2
9.2
11.5
65.2
9.1
22.2
34.0
4.3
6.7
3.2
4.0
6.8
2.7
3.9
6.8
2.4
4.0
6.6
2.7
4.6
6.7
3.4
2001
(In millions of EC dollars, end-period)
Debt stock
Public sector debt net of borrowing from the NIS
Domestic debt net of borrowing from the NIS
Domestic debt including borrowing from the NIS
By type of creditor
ECCB
Commercial banks
Other (includes NIS and insurance companies)
By instrument
Treasury bills 2/
Loans
Bonds
Other (includes overdraft)
Public sector external debt 3/
By type of creditor
Official bilateral
Official multilateral
Commercial
(In percent of GDP)
Total debt
Domestic debt
External debt
68.2
19.1
49.1
(In percent of government revenues)
Total debt
Domestic debt
External debt
237.2
66.6
170.7
(In millions of EC dollars, end-period)
Debt service
Total debt service
Amortization
Domestic
External
Interest
Domestic
External
45
17
...
17
27
13
14
(In percent of GDP)
Total debt service
Interest cost
Amortization
In percent of government revenue excluding grants
In percent export of goods and services
In percent of broad money 4/
Domestic debt service
In percent of government revenue excluding grants
In percent export of goods and services
In percent of broad money 4/
External debt service
In percent of government revenue excluding grants
In percent export of goods and services
In percent of broad money 4/
Memorandum items:
Debt structure (in percent)
Domestic
Treasury bills 2/
Loans
Bonds
Other (includes overdraft)
External
Official bilateral
Official multilateral
Commercial
Effective average interest rate 5/
Domestic debt
External debt
Sources: Ministry of Finance and Planning; and Fund staff estimates.
1/ Net of intra-public sector debt (mainly central government debt to the NIS). The consolidated public sector includes the government, the National Insurance
Services (NIS), Kingstown Board, and 10 nonfinancial public enterprises.
2/ Treasury bills purchased by nonresidents on the RGSM since March 2003, are included.
3/ Includes the assumption of private debt for Ottley Hall shipyard in 1999.
4/ Including foreign currency deposits.
5/ Interest payment as percent of the average debt stock at beginning and end period.
1.5
-2.1
0.0
0.0
0.0
0.0
0.0
-0.2
1.6
0.1
0.0
0.0
0.0
0.0
0.0
1.3
-0.1
4.5
2.4
0.0
2.0
1.3
-2.3
8.1
28.0
3.2
4.3
2.3
0.0
2.0
23.6
3.1
13.1
48.0
201.7
46.5
2.3
2.5
3.1
34.9
38.0
-0.6
-0.6
49.1
0.6
-0.7
-2.3
34.2
31.9
1.7
1.7
199.3
70.5
68.2
2002
2.8
4.1
2.7
0.0
1.4
-7.7
0.3
10.3
39.3
214.2
1.8
-1.9
0.0
0.0
0.0
0.0
0.0
1.7
50.9
1.8
0.1
0.3
33.7
34.0
-0.1
-0.1
72.3
Actual
2003
6.8
4.4
2.1
0.0
2.3
11.7
3.4
13.8
56.2
236.9
1.3
-4.5
0.0
0.0
0.0
0.0
0.0
5.6
54.1
5.9
0.2
3.4
33.0
36.4
-3.2
-3.2
78.1
2004
2.2
4.9
2.8
0.0
2.1
5.4
3.6
14.4
62.1
243.3
2.0
-1.6
0.0
0.0
0.0
0.0
0.0
-0.6
54.7
3.5
4.0
3.6
33.5
37.2
0.4
0.4
81.6
2005
4.1
6.2
2.9
0.0
3.2
17.1
4.5
84.5
86.7
15.9
73.9
228.4
2.1
-3.1
0.0
0.0
0.0
0.0
0.0
-0.6
53.3
2.9
3.5
4.5
37.0
41.5
-1.0
-1.0
84.5
2006
5.5
5.9
2.0
0.0
3.9
7.3
1.3
84.5
89.0
11.9
60.2
202.6
1.4
-4.2
0.0
0.0
0.0
0.0
0.0
0.5
50.7
-1.0
-1.5
1.3
41.2
42.5
-2.8
-2.8
83.5
2007
6.3
5.8
2.2
0.0
3.7
11.3
0.1
84.6
96.0
9.7
53.8
180.7
1.5
-4.8
0.0
0.0
0.0
0.0
0.0
0.5
48.0
-2.8
-3.3
0.1
44.7
44.7
-3.3
-3.3
80.7
5.9
5.9
2.4
0.0
3.6
-3.8
-0.3
84.5
101.4
8.5
51.7
190.0
1.6
-4.3
0.0
0.0
0.0
0.0
0.0
0.4
45.1
-2.6
-3.0
-0.3
41.1
40.8
-2.7
-2.7
78.0
Projections
2008
2009
5.3
6.1
2.9
0.0
3.3
1.1
0.3
84.4
105.3
8.5
55.6
196.8
1.9
-3.8
0.0
0.0
0.0
0.0
0.0
0.3
42.8
-1.3
-1.5
0.3
39.0
39.3
-1.9
-1.9
76.8
2010
4.8
6.3
3.6
0.0
2.7
-4.3
-0.5
84.4
107.2
7.5
53.0
207.1
2.5
-3.4
0.0
0.0
0.0
0.0
0.0
0.4
41.2
-1.0
-1.4
-0.5
36.6
36.1
-1.0
-1.0
75.8
2011
1/ Nonfinancial public sector gross debt.
2/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency
denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
3/ The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.
4/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).
5/ For projections, this line includes exchange rate changes.
6/ Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.
7/ The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.
8/ Derived as nominal interest expenditure divided by previous period debt stock.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Real GDP growth (in percent)
Average nominal interest rate on public debt (in percent) 8/
Average real interest rate (nominal rate minus change in GDP deflator, in percent)
Nominal appreciation (increase in US dollar value of local currency, in percent)
Inflation rate (GDP deflator, in percent)
Growth of real primary spending (deflated by GDP deflator, in percent)
Primary deficit
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Scenario with key variables at their historical averages 7/
Scenario with current policies
Gross financing need 6/
In millions of U.S. dollars
Public sector debt-to-revenue ratio 1/
1 Baseline: Public sector debt 1/
Of which
Foreign-currency denominated
2 Change in public sector debt
3 Identified debt-creating flows (4+7+12)
4 Primary deficit
5
Revenue and grants
6
Primary (noninterest) expenditure
7 Automatic debt dynamics 2/
8
Contribution from interest rate/growth differential 3/
Of which
9
Contribution from real interest rate
10
Contribution from real GDP growth
11
Contribution from exchange rate depreciation 4/
12 Other identified debt-creating flows
13
Privatization receipts (negative)
14
Recognition of implicit or contingent liabilities
15
Other (specify, e.g., bank recapitalization)
16 Residual, including asset changes (2-3) 5/
2001
(In percent of GDP, unless otherwise indicated)
Table 8. St. Vincent and the Grenadines: Public Sector Debt Sustainability Framework, 2001–11
0.0
-0.5
-0.9
Debt-Stabilizing
Primary Balance 9/
38
3.2
2.0
2.5
1.4
3.3
-10.3
9.3
49.0
13.4
95.2
-2.6
-0.3
10.3
10.0
48.8
58.8
-9.3
-1.3
1.2
-1.5
-2.4
46.5
2002
2.8
1.4
2.4
-3.1
12.4
-19.7
14.4
87.8
23.0
112.6
4.5
4.4
19.7
17.9
45.2
63.1
-14.4
-0.9
1.1
-1.3
0.0
50.9
6.8
2.3
2.7
6.7
12.8
-23.8
16.1
115.4
28.3
119.7
3.2
4.7
23.8
21.5
45.2
66.7
-16.1
-3.1
1.3
-3.2
-1.4
54.1
2004
2.2
2.1
3.3
3.6
2.3
-22.3
7.7
117.4
27.3
123.1
0.5
14.0
22.3
20.3
44.4
64.7
-7.7
-0.6
1.7
-1.1
-13.5
54.7
2005
4.1
3.2
4.8
10.5
9.3
-22.1
9.6
53.3
130.6
28.2
117.5
-1.4
12.8
22.1
20.0
45.3
65.3
-9.6
0.3
2.4
-2.1
-14.2
53.3
2006
5.5
3.9
3.8
7.6
9.7
-23.0
13.5
47.0
145.6
28.7
113.3
-2.5
8.7
23.0
21.1
44.8
65.8
-13.5
-0.8
1.8
-2.7
-11.3
50.7
2007
6.3
3.7
3.6
9.3
11.7
-24.3
12.3
37.7
164.9
29.5
107.4
-2.8
10.7
24.3
22.4
44.7
67.1
-12.3
-1.3
1.6
-2.9
-13.5
48.0
5.9
3.6
3.6
9.6
8.9
-23.8
10.6
26.0
178.5
29.2
100.6
-2.8
12.2
23.8
22.1
44.9
67.0
-10.6
-1.0
1.6
-2.6
-15.1
45.1
Projections
2008
2009
5.3
3.3
3.9
9.9
6.7
-22.1
10.0
15.2
181.2
27.2
94.1
-2.3
11.5
22.1
20.5
45.5
66.0
-10.0
-0.6
1.6
-2.2
-13.8
42.8
2010
4.8
2.7
4.0
10.1
4.3
-18.9
9.6
7.7
170.5
23.8
88.1
-1.6
9.0
18.9
17.4
46.8
64.2
-9.6
-0.3
1.6
-1.9
-10.6
41.2
2011
-10.9
-11.0
Debt-Stabilizing
Non-interest
Current Account 6/
1/ Defined as nonfinancial public sector gross debt. Information on private sector external borrowing is not available.
2/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth
e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
3/ For projection, line includes the impact of external borrowing by the private sector.
4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels
of the last projection year.
Real GDP growth (in percent)
GDP deflator in US dollars (change in percent)
Nominal external interest rate (in percent)
Growth of exports (US dollar terms, in percent)
Growth of imports (US dollar terms, in percent)
Current account balance, excluding interest payments
Net non-debt creating capital inflows
Key Macroeconomic Assumptions Underlying Baseline
-0.1
2.0
2.9
-1.9
4.0
-9.1
6.1
42.4
12.3
Gross external financing need (in millions of US dollars) 4/
in percent of GDP
Scenario with key variables at their historical averages 5/
96.4
1.2
3.4
9.1
9.3
50.9
60.2
-6.1
0.4
1.4
0.0
-2.2
49.1
External debt-to-exports ratio (in percent)
2 Change in external debt
3 Identified external debt-creating flows (4+8+9)
4
Current account deficit, excluding interest payments
5
Deficit in balance of goods and services
6
Exports
7
Imports
8
Net non-debt creating capital inflows (negative)
9
Automatic debt dynamics 2/
10
Contribution from nominal interest rate
11
Contribution from real GDP growth
13 Residual, incl. change in gross foreign assets (2-3) 3/
1 Baseline: External debt 1/
2001
Actual
2003
Table 9. St. Vincent and the Grenadines: External Debt Sustainability Framework, 2001–11
(In percent of GDP, unless otherwise indicated)
39
40
Table 10. St. Vincent and the Grenadines: Indicators of External and Financial Vulnerability, 2001–06
(Annual percentage changes, unless otherwise specified)
External indicators
Merchandise exports
Merchandise imports
Terms of trade deterioration (-)
Tourism earnings
Banana export earnings
Current account balance (in percent of GDP)
Capital and financial account balance (in percent of GDP) 1/
Of which
Foreign direct investment (in percent of GDP)
Gross international reserves of the ECCB
In millions of U.S. dollars
In percent of broad money
Gross imputed reserves
In millions of U.S. dollars
In percent of short-term liablilities
Commercial banks' net foreign assets (in millions of U.S. dollars)
External public debt (in percent of GDP)
External debt service (in percent of exports of goods and
nonfactor services)
Of which
Interest
Nominal exchange rate (E.C. dollars per U.S. dollar, end period)
Real effective exchange rate depreciation (-), end period
Financial indicators
Broad money
Credit to the private sector
Prudential indicators (in percent) 2/
Capital adequacy ratio (local banks)
NPLs to total loans ratio
Of which
Local banks
Foreign banks
Loan loss provision to NPLs ratio
Of which
Local banks
Foreign banks
Gross government claims to total assets ratio
Foreign currency deposits to total deposits ratio
Net foreign currency exposure to capital (local banks)
Contingent liabilities to capital (local banks)
(Pre-tax) return on average assets
Three-month treasury bill rate 3/
2001
2002
2003
2004
Est.
2005
Proj.
2006
-17.4
5.3
2.9
8.3
-25.4
-10.4
11.2
-3.5
3.8
2.6
2.3
16.0
-11.5
9.7
-2.8
12.1
-4.9
0.2
-25.2
-20.8
20.7
-2.0
12.5
0.0
4.8
10.0
-25.1
31.4
5.5
2.2
-4.3
5.6
-8.9
-24.0
23.3
17.2
9.6
0.6
8.1
23.3
-24.5
24.4
6.1
9.3
14.4
16.1
7.7
9.6
446.0
19.1
504.8
20.2
540.0
19.8
632.4
20.5
600.8
17.9
652.9
17.8
60.8
250.9
52.5
347.0
50.4
148.5
74.2
143.2
68.8
131.9
68.5
…
33.3
49.1
48.6
46.5
65.6
50.9
83.9
54.1
75.2
54.7
80.0
53.3
6.7
6.5
7.3
10.0
11.5
13.0
3.0
2.6
2.5
3.1
4.1
5.3
2.7
2.7
2.7
2.7
2.7
2.7
-0.1
-5.4
-5.9
-4.6
4.9
…
3.0
2.3
8.3
4.6
1.9
0.6
13.7
0.9
6.4
5.5
8.3
2.2
12.2
13.0
12.8
11.3
7.5
11.1
10.6
9.6
14.0
5.3
…
…
18.8
5.4
30.4
15.3
5.1
41.5
18.0
2.0
34.1
14.3
3.9
34.3
5.9
4.7
38.4
…
…
…
30.4
30.4
15.2
4.5
39.4
66.2
1.0
7.0
40.0
48.1
19.2
3.4
42.4
51.0
1.2
7.0
26.9
119.4
16.1
3.0
187.1
48.6
1.0
5.7
29.8
53.5
20.3
4.2
421.9
147.3
1.2
4.6
42.5
32.0
19.8
3.8
313.3
73.1
2.4
4.8
…
…
…
…
…
…
…
…
Sources: Eastern Caribbean Central Bank; Ministry of Finance; and Fund staff estimates and projections.
1/ Includes errors and omissions.
2/ Prudential indicators are based on commercial banks' own reporting, with infrequent on-site verification by the ECCB.
3/ As of December 28, 2005.
41
Table 11. St. Vincent and the Grenadines: Millennium Development Goals Country Profile
1995
1. Eradicate extreme poverty and hunger
Prevalence of child malnutrition (percent of children under 5)
2004
2015 target = halve 1990 $1 a day poverty and malnutrition rates
20
..
..
...
...
2015 target = net enrollment to 100
..
93.0
..
73.5
..
..
88
..
..
..
..
94.0
92.9
..
2005 target = education ratio to 100
..
101.7
..
..
5
..
101.6
..
95.6
23
2015 target = reduce 1990 under 5 mortality by two-thirds
22
22
25
18
21
22
99
99
99
27
22
94
22
18
99
2015 target = reduce 1990 maternal mortality by three-fourths
..
..
..
..
100
..
..
..
..
..
..
..
..
29.2
..
..
..
..
28.5
33.0
..
..
..
..
..
28
..
..
..
..
..
318.8
..
..
..
641.5
135.1
67.6
..
..
3,310
2.1
72.9
..
106.3
361.4
3,400
2.1
71.3
..
Net primary enrollment ratio (percent of relevant age group)
Primary completion rate (percent of relevant age group)
Percentage of cohort reaching grade 5 (percent)
3. Promote gender equality
Ratio of girls to boys in primary and secondary education (percent)
Proportion of seats held by women in national parliament (percent)
Under 5 mortality rate (per 1,000)
Infant mortality rate (per 1,000 live births)
Immunization, measles (percent of children under 12 months)
5. Improve maternal health
Maternal mortality ratio (modeled estimate, per 100,000 live births)
Births attended by skilled health staff (percent of total)
6. Combat HIV/AIDS, malaria and other diseases
Prevalence of HIV, female (percent ages 15–24)
Contraceptive prevalence rate (percent of women ages 15–49)
Number of children orphaned by HIV/AIDS
Incidence of tuberculosis (per 100,000 people)
Tuberculosis cases detected under DOTS (percent)
2015 target = halt, and begin to reverse, AIDS, etc.
..
..
..
..
..
..
..
..
..
..
28
28.9
..
19.1
..
7. Ensure environmental sustainability
..
..
1.2
..
..
Forest area (percent of total land area)
Nationally protected areas (percent of total land area)
CO2 emissions (metric tons per capita)
Access to an improved water source (percent of population)
Access to improved sanitation (percent of population)
8. Develop a Global Partnership for Development
Youth unemployment rate (percent of total labor force ages 15–24)
Fixed line and mobile telephones (per 1,000 people)
Personal computers (per 1,000 people)
Internet users (per 1,000 people)
2002
2003
2. Achieve universal primary education
4. Reduce child mortality
2001
..
166.6
..
..
2015 target = various 1/
26
21.0
1.5
93.0
96.0 ..
..
21.3
..
..
2015 target = various 2/
..
..
291.9
318.8
113.0
119.7
..
..
General indicators
Population (thousands)
Gross national income (in millions of U.S. dollars)
GNI per capita (in U.S. dollars)
Total fertility rate (births per woman)
Life expectancy at birth (years)
Aid (percent of GNI)
106.3
247.5
2,328
2.3
72.2
18.7
106.3
321.8
3,027
2.1
72.9
2.6
106.3
330.2
3,106
2.1
72.9
1.4
Sources: World Development Indicators database, October 2006, and Fund staff estimates.
1/ Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015,
the proportion of people without sustainable access to safe drinking water.
2/ Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system. Address the Special Needs of the Least Developed and
landlocked countries, and of small island developing states. Deal comprehensively with the debt problems of developing countries through national and
international measures in order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for
decent and productive work for youth. In cooperation with pharmaceutical companies, provide access to affordable, essential drugs in development
countries. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications.
42
Annex I. Medium-Term Outlook Under Alternative Fiscal Scenarios
The risk of current fiscal policies leading to an unsustainable level of public debt has
risen, given the increasing pressure for capital expenditure. In the absence of
containment of expenditures elsewhere, notably in wages and salaries, and a determined
increase in revenues, current debt dynamics are quite unfavorable.
For the analysis of the medium-term prospects for the economy of St. Vincent and the
Grenadines, staff simulated two fiscal scenarios. A first (current policies) scenario was
predicated upon the broad continuation of existing policies; the second (active) scenario was
based on significant additional policy adjustment, and garnering of additional resources from
external donors. Under the current policies scenario, the debt stock and debt servicing costs
continue to rise rapidly; under the active scenario discussed in the text, the stock of debt
declines gradually over the medium term.
Current policies scenario. The authorities continue current expansionary policies with very
large overall imbalances that are financed commercially, and also through some grants from
nontraditional donors, such as Venezuela, Taiwan Province of China, and Mexico. Financing
is assumed to continue to be available, no matter what level the debt stock reaches. In the
medium term growth remains driven by the public sector, mainly through large-scale
construction, but is still lower (by about one half of 1 percent) than under the active scenario.
On the revenue side, the introduction of the VAT yields no additional revenues and the
government continues to absorb any additional cost of higher world oil prices. On the
expenditure side, there is relatively little reduction in the wage bill, and public sector capital
expenditures increase by around 5 percent of GDP. Under this scenario, the public sector
primary deficit would deteriorate rapidly (peaking at around 10 percent of GDP by 2008),
and public debt would reach about 107 percent of GDP by 2011 (see Table 6, Scenario I).
Active scenario. A fiscal adjustment of 2 percent of GDP is assumed for 2006 (see main
text) and further adjustment over the medium term, with the central government primary
balance moving from a deficit of 2.6 percent of GDP in 2005 to a surplus of 2.9 percent of
GDP by 2011. The adjustment in 2006 is expected to be realized through additional revenues
and reduction in expenditure. Greater revenue mobilization is mainly achieved by increased
petroleum product taxes, through an automatic adjustment of domestic retail prices (yielding
around one half of a percent of GDP), and higher capital revenues (land sales), while on the
expenditure side growth of the wage bill will be curbed (through the cessation of new hires
and ad-hoc bonuses), and low-priority capital projects will be eliminated or postponed.
Over the medium-term, the main source of additional revenues are the introduction of a
revenue-positive VAT, and the introduction of market-valuation based property tax. On the
expenditure side, growth in the wage bill will be minimal (by holding constant the number of
civil servants and refraining from ad hoc end-year bonuses), while capital expenditure will be
43
curtailed by the elimination of low-priority capital projects such as the renovation of the
sports stadium.
With the impetus from public sector capital projects, the underlying growth is expected to
accelerate with the greater activity in the private sector, and is estimated at about 5 percent of
GDP over the medium term. In this scenario, the debt stock would fall to 76 percent of GDP
by 2011 (Table 6, Scenario II).
44
Appendix I. St. Vincent and the Grenadines—Relations with the Fund
(As of October 31, 2006)
I. Membership Status: Joined: December 28, 1979; Article VIII.
II. General Resources Account:
Quota
Fund holdings of currency
Reserve Position
Holdings Exchange Rate
SDR Million
8.30
7.80
0.50
%Quota
100.00
93.98
6.02
III. SDR Department:
Net cumulative allocation
Holdings
SDR Million
0.35
0.00
%Allocation
100.00
1.16
IV. Outstanding Purchases and Loans: None
V. Latest Financial Arrangements:
None
VI. Projected Payments to Fund
(SDR Million; based on existing use of resources and present holdings of SDRs):
Forthcoming
2006
2007
2008
2009
2010
Principal
Charges/Interest
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
Total
VII. Implementation of HIPC Initiative: Not Applicable.
VIII. Implementation of MDRI Assistance:
Not Applicable.
IX. Exchange Arrangement:
St. Vincent and the Grenadines is a member of the Eastern Caribbean Central Bank (ECCB),
which manages monetary policy and the exchange system for its eight members. The
common currency, the Eastern Caribbean dollar, has been pegged to the U.S. dollar at the
rate of EC$2.70 per U.S. dollar since July 1976. In practice the ECCB has operated like a
quasi-currency board, maintaining foreign exchange backing of its currency and demand
liabilities of close to 100 percent. The exchange system is free of restrictions on the making
of payment and transfers for current international transactions.
45
X.
Safeguards Assessment:
Under the Fund's safeguards assessment policy, the Eastern Caribbean Central Bank (ECCB),
of which St. Vincent and the Grenadines is a participating government, is subject to a full
safeguards assessment. The onsite safeguards assessment was completed on
February 20, 2003, and concluded that the ECCB has in place appropriate mechanisms to
manage resources, including Fund disbursements and that the vulnerabilities that remain do
not present an undue risk. The safeguards assessment proposed specific measures to address
these vulnerabilities, which have been substantially implemented by the ECCB.
XI.
Last Article IV Consultation:
The last Article IV consultation was concluded by the Executive Board on July 13, 2005; the
relevant documents were published as IMF Country Reports No. 06/205 and 06/206.
St. Vincent and the Grenadines is on the standard 12-month consultation cycle. The
authorities have not accepted the Fourth Amendment of the Fund’s Articles of Agreement.
XII.
FSAP Participation, ROSCs, and OFC Assessments:
St. Vincent and the Grenadines participated in the regional ECCU FSAP conducted in
September and October 2003. The Financial System Stability Assessment is IMF Country
Report No. 04/293. A review of St. Vincent and the Grenadines AML/CFT Assessment was
conducted by a team of assessors representing the Caribbean Financial Action Taskforce
(CFATF) in September 2003. A ROSC for Basle Core Principles Assessment of St. Vincent
and the Grenadines’ offshore banking sector was completed in April 2004, and published as
IMF Country Report 04/305.
XIII. Technical Assistance: (2005–present)
During 2005 and 2006, St. Vincent and the Grenadines has benefited from technical
assistance in the areas of tax policy, tax administration, economic statistics, financial
supervision and macroeconomic management, both from IMF headquarters and the
Caribbean Regional Technical Assistance Center (CARTAC).
•
Experts from CARTAC and the IMF’s Statistics Department (STA) advised the
Central Statistics Office on improving the national accounts, and developing exportimport price indices.
•
Experts from CARTAC, the IMF’s Monetary and Capital Markets Department
(MCD), and the IMF’s Legal Department (LEG) advised the authorities on
amendments to the Building Societies Act, and strengthening financial supervision
and regulation.
46
•
In 2005 and 2006, CARTAC assisted the Ministry of Finance in updating their
public financial projections particularly on the debt implications of large public
sector investments.
•
CARTAC, the IMF’s Fiscal Affairs Department (FAD) and LEG provided extensive
assistance, through frequent expert visits, to help design and implement a Value
Added Tax (VAT).
Further IMF technical assistance is planned in 2007. CARTAC experts will continue to assist
the authorities in the post-implementation period of the VAT, while headquarters-based
missions from FAD are expected to provide assistance in strengthening tax administration.
47
Appendix II. St. Vincent and the Grenadines—Relations with the World Bank Group
(As of October 31, 2006)
The World Bank’s Management presented to its Board the Eastern Caribbean Sub-Region
Country Assistance Strategy (CAS), on September 13, 2005. The World Bank Group’s
strategy for the four years covered by this CAS (FY06–09) supports the sub-region’s
development agenda through two main pillars: (1) stimulating growth and improving
competitiveness; and (2) reducing vulnerability, by promoting greater social inclusion and
strengthening disaster risk management. Recognizing the OECS countries’ weakened
creditworthiness due to high debt ratios, Bank activities will focus on leveraging available
donor grant financing. Following the recommendations of the recently completed growth and
competitiveness study for the OECS, IBRD and IDA support would focus on providing
technical and financial assistance for interventions to support the two main pillars. An
indicative Base Case lending scenario consists of about US$51.3 million in IDA resources
for the four OECS blend countries (Dominica, Grenada, St. Lucia and St. Vincent and the
Grenadines). This amount includes the estimated IDA country allocations for each of the four
countries during FY06–09, and an IDA Regional allocation of US$15.2 million for two
regional projects: US$12 million for Catastrophe Risk Insurance and US$3.2 million for
Infrastructure and Utilities Reform. Planned lending to St. Vincent and the Grenadines
amounts to US$12.6 million under the Base Case lending scenario and consists of the Public
Sector Modernization Infrastructure and Utilities Reform investment project.
I. PROJECTS
There are three active World Bank projects in St. Vincent and the Grenadines for a net
commitment of approximately US$13.7 million.
The Telecommunications & ICT Development Project, approved in September 2005, aims
at improving the access, quality, and use of telecommunications and ICT services to achieve
socio-economic development in the Organization of Eastern Caribbean States (OECS). The
project has the following four components: Component (1) will strengthen the national and
regional regulatory frameworks and promote additional competition in the
telecommunications sector. Emphasis will be given to capacity building of Eastern Caribbean
Telecommunications Authority (ECTEL) and the National Telecommunications Regulatory
Commissions (NTRCs) by providing them with assistances to revise the regional and
national sector legislation, and develop a modem interconnection regime. Component (2) will
review current universal access policy, create related guidelines, and provide financial
support to establish a Universal Service Fund (USF). Component (3) will improve growth
and competitiveness in ICT-enabled services through utilization of broadband infrastructure.
Component (4) will finance management and administration of the overall project. The
project will finance related technical assistance by providing complementary resources.
48
The St. Vincent and the Grenadines Education Reform Project approved in June 2004 for
US$6.2 million. The overall objective of this project is to build human capital which, in turn,
will contribute to the diversification of the economy and more sustainable growth. This
objective will be achieved by: (i) increasing equitable access to secondary education;
(ii) improving the quality of the teaching and learning process, with more direct interventions
at the school level and a focus on student-centered learning, and (iii) strengthening
management of the sector and governance of schools.
The HIV/AIDS Prevention and Control Program, which was approved in July 2002, is
funded under the Multi-Country APL for the Caribbean Region, with the following
objectives: (i) curbing the spread of HIV/AIDS epidemic; (ii) reducing the morbidity and
mortality attributed to HIV/AIDS; (iii) improving the quality of life for persons living with
HIV/AIDS (PLWAs); and (iv) developing a sustainable organizational and institutional
framework for managing the HIV/AIDS epidemic over the longer term. The Bank’s support
to St. Vincent and the Grenadines under this project is for US$7.0 million.
II. ECONOMIC AND SECTOR WORK
The Bank has completed a series of analytical work relating to: public sector capacity in the
OECS including the Institutional and Organizational Capacity Review, the OECS
Procurement Assessment Review, the OECS Financial Accountability Assessment and an
Infrastructure Services Studies. In conjunction with the IMF, a Financial Sector Assessment
Program (FSAP) was completed in early 2004. The Bank also recently completed an OECS
study on Growth and Competitiveness. A review of large scale energy options for the OECS,
under the Energy Sector Management Assistance Program, was completed in February 2006.
For St. Vincent and the Grenadines specifically, the Bank recently completed an Analysis of
Fiscal Issues, which examines the management and allocation of public expenditure.
St. Vincent and the Grenadines will also benefit from ongoing and planned analytical and
advisory activities to support the new CAS’ two main pillars including the following
activities: Caribbean Air Transport Rationalization report, a Caribbean Skills and Curriculum
Study, Caribbean Financial Sector and Regulation report, Caribbean Social Protection
Strategy Review, a regional study on Crime and Violence.
49
III. Financial Relations
(In millions of U.S. dollars)
Operation
TELECOM AND ICT DEVELOPMENT
EDUCATION REFORM PROJECT
HIV/AIDS PREVENTION AND CONTROL
Total
Original Principal
0.54
6.20
7.00
13.74
Disbursed 1/
0.05
0.46
0.02
0.52
Undisbursed1/
0.51
5.89
6.24
12.65
1/ Amounts may not add up to original principal due to changes in the SDR/US exchange rate since signing.
Disbursements and Debt Service (Fiscal Year Ending June 30)
1999
2000
2001
2002
Actual
2003
2004
2005
2006
2007 1/
Total disbursements
0.22
0.02
0.36
1.46
1.73
1.20
2.48
4.55
1.20
Repayments
0.11
0.13
0.12
0.12
0.29
0.14
0.27
0.30
0.14
Net disbursements
0.11
0.10
0.24
1.34
1.44
1.06
2.21
4.25
1.06
Interest and fees
0.08
0.00
0.03
0.07
0.12
0.13
0.19
0.21
0.10
1/ Data as of Oct. 31, 2006
50
Appendix III. St. Vincent and the Grenadines—Relations with the
Caribbean Development Bank
(As of October 31, 2006)
The Caribbean Development Bank (CDB) has approved loans totaling US$147 million, of
which US$34.5 million are undisbursed.
Major Projects:
•
Third Power Project—is geared towards improving the operational capability and
reliability of St. Vincent Electricity Services Limited (VINLEC) in order to meet the
projected demand for electricity to the end of 2008.
•
Basic Education Project (Second Loan)—is to assist the Government of St. Vincent
and the Grenadines in enhancing the learning environment through improvements in
delivery of pre-primary and basic education within St. Vincent and the Grenadines.
Components include the construction of four schools; the upgrading of knowledge,
skills and competencies of education managers, planners and supervisors; and
professional development of teachers, trainers, principals and other key school
personnel.
•
3rd Road Project (Windward Highway)—to reconstruct approximately
23 kilometers of the Windward Highway; the realignment of the road at 6 locations;
widening and lining of the Byera tunnel to provide pedestrian access; and
rehabilitation of 13 bridges.
•
Student Loan Scheme (Sixth Loan)—to provide loans to student for upgrading skills
at the professional, technical and vocation levels.
•
Caribbean Court of Justice—to provide for the establishment and operation of a
final Court of Appeal to replace the Judicial Committee of the Privy Council and to
act as a final arbiter in disputes arising between CARICOM member states or
between a CARICOM national and another country.
51
I. CURRENT PORTFOLIO
(In millions of U.S. dollars)
Approved
Undisbursed
Third Power Project
18.3
9.6
Basic Education (Second Loan)
17.6
16.9
3 Road Project—Windward Highway
10.6
5.0
Student Loan Scheme (Sixth Loan)
3.5
1.9
Line of Credit (Third Loan)
2.4
0.4
OECS Solid Waste Project (add. Loan)
2.0
0.2
rd
II. LOAN DISBURSEMENT
(In millions of U.S. dollars)
2002
2003
2004
2005
20061
Net Disbursement
3.80
0.96
1.52
4.01
6.39
Disbursement
5.93
3.88
4.61
7.35
9.18
Amortization
2.13
2.92
3.09
3.34
2.79
Interest and charges
1.82
1.92
1.99
2.11
2.53
Net resource flow
1.98
-0.96
-0.47
1.90
3.86
1/ As of October 31.
52
Appendix IV. St. Vincent and the Grenadines—Statistical Issues
(As of November 13, 2006)
St. Vincent and the Grenadines participates in the General Data Dissemination System
(GDDS) since September 2000, and its metadata are posted on the Dissemination Standards
Bulletin Board (DSBB). St. Vincent and the Grenadines’ statistical database remains weak in
terms of coverage, consistency, periodicity, and timeliness. While in areas central to
surveillance—notably central government accounts, indicators of the financial sector and
external sector accounts—the data are adequate for surveillance purposes, information on the
rest of the public sector and nonbank financial intermediaries is limited. Major improvements
are needed to facilitate effective surveillance, particularly in the coverage of national
accounts (especially the tourism sector and related services), and on data used to monitor
labor markets. Efforts to address the weaknesses in the statistical base have been hampered
by low response rates to surveys (less than 50 percent), and high turnover of staff.
National Accounts: National accounts by sector are provided with a one-year lag, with
inadequate coverage of economic activity in the informal sector. There is a need to upgrade
compilation of methodology from the 1968 System of National Accounts to the 1993 System
of National Accounts. In addition, data on GDP broken down by type of expenditure are not
available at constant prices, while data at current prices are not reliable due to weaknesses in
estimating gross capital formation. Private final consumption expenditure is estimated as a
residual.
Prices: Data on the consumer price index (CPI) are reported regularly with a two-month lag.
CARTAC has assisted in linking the 1981-based CPI series to the 2001-based one, as part of
the Fund assisted program on Constructing Weights for the Harmonized Consumer Price
Index in the Eastern Caribbean Currency Union (ECCU).
Labor: The Statistical Office has not published official data on unit labor costs and
employment. Results of the 2001 population census have been analyzed and published.
Public finance: The IMF publishes annual data for the consolidated general government in
the GFS Yearbook, with the 2005 edition showing annual data to 2004. Only cash data are
shown, with a detailed classification of revenue and a functional, but not economic,
classification of expenditure. No financing information is provided. The 2005 GFS Yearbook
shows no balance sheet data but the 2004 edition published domestic and foreign liabilities
for 2001. Due to delays in reporting capital expenditures by some ministries, quarterly
revenue and expenditure data for the central government are provided to the Fund with some
lag. Discrepancies exist between the fiscal and monetary accounts, between above and below
the line for budget data, and between financing and debt data. Although domestic debt
figures are now available following implementation of the Commonwealth Secretariat—Debt
53
Recording and Management System, the domestic debt amortization figures are incomplete.
The financial reports of public enterprises are not timely, with about a two-year lag.
Monetary statistics: Monetary data are compiled by the ECCB on a monthly basis. The data
are reported regularly to the Fund, although the timeliness of data could be improved. There
is also a need to improve the institutional coverage that currently only comprises the ECCB
and commercial banks. Full implementation of recommendations made by the monetary and
financial statistics missions conducted in August 2003 and December 2005 would ensure
consistency with international best practice.
Balance of payments: Estimates for St. Vincent and the Grenadines are currently provided
on an annual basis by the ECCB, using a format that is not fully consistent with BPM5. There
is a need to improve the compilation of capital and financial account transactions in the
balance of payments. In addition, the recording of the stock of private and public debt should
be improved.
3
3
5
5/27/06
12/05
Gross External Debt
A
A
M
A
A
Q
Q
M
M
M
M
M
M
M
n.a.
Data
6
Frequency of
A
A
M
A
A
Q
Q
M
Q
Q
Q
Q
Q
Q
n.a.
Reporting
6
Frequency of
2
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3
Foreign, domestic bank, and domestic nonbank financing.
4
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
5
Including currency and maturity composition.6 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).
1
5/25/06
2005
GDP/GNP
5/16/06
12/05
Exports and Imports of Goods and Services
5/16/06
2005
5/27/06
10/20/06
08/06
12/05
10/20/06
9/13/06
08/06
08/06
9/21/06
9/21/06
9/21/06
9/21/06
9/21/06
5/2/06
n.a.
Date Received
External Current Account Balance
Stocks of Central Government and Central Government-Guaranteed Debt
Revenue, Expenditure, Balance and Composition of Financing – Central
Government
Government
4
Revenue, Expenditure, Balance and Composition of Financing – General
Consumer Price Index
07/06
07/06
Consolidated Balance Sheet of the Banking System
2
07/06
Central Bank Balance Sheet
Interest Rates
07/06
Broad Money
02/06
07/06
1
Fixed Rate
Observation
Reserve/Base Money
Authorities
International Reserve Assets and Reserve Liabilities of the Monetary
Exchange Rates
Latest
Date of
A
A
Q
A
A
A
A
M
Q
Q
Q
Q
Q
Q
n.a.
Publication
6
Frequency of
St. Vincent and the Grenadines: Table of Common Indicators Required for Surveillance
(As of November 13, 2006)
54
Statement by the IMF Staff Representative
January 17, 2007
1.
The following information has become available since the staff report was issued to
Executive Directors. The thrust of the staff appraisal remains unchanged.
2.
Recent data confirm that macroeconomic developments have been favorable.
The authorities’ preliminary estimates indicate that GDP growth in 2006 reached about
6½ percent, driven by a more rapid than expected pick up in construction activity. Following
recent increases in domestic petroleum prices, consumer prices increased by 4.3 percent in
the 12 months ending November 2006, in line with staff estimates.
3.
Fiscal performance appears to have been weaker than earlier estimated. Data for
the second half of 2006 show strong revenue performance, driven by the increase in fuel
prices and rising stamp duty revenues, but also a faltering of spending discipline due to both
rising capital expenditure and (particularly in the fourth quarter) higher current expenditure
on wages, transfers and subsidies. As a result, staff now estimates that the central
government overall deficit for 2006 is likely to be close to 5 percent of GDP, with the
primary deficit of 1 percent of GDP exceeding the staff’s recommendation by about one half
of one percent of GDP (see attached table).
4.
Assuming capital spending implementation and grant receipts are at historical
rates, the 2007 Budget, which was tabled in Parliament on December 11, would yield
some fiscal consolidation, albeit less than recommended by the staff. Overall revenue
(including grants) is dipping slightly as a share of GDP, as a sharp rise in external grants
largely offsets the effects of a cut in petroleum prices from EC$11.50 to EC$9.75 per gallon,
a halving of stamp duty, and a reduction in the rate of corporate income tax from 40 percent
to 37½ percent. By lowering expenditures by about 1 percent of GDP, staff estimates that the
central government overall deficit for 2007 would likely narrow to around 4¼ percent of
GDP, with the primary deficit reaching 0.7 percent of GDP in comparison to the staff’s
recommendation of a primary surplus of 0.8 percent of GDP (see attached table).
5.
Broader policy commitments in the 2007 Budget include:
•
Tax reform. The government affirmed its commitment to implementing the valueadded tax by May 2007.
•
Expenditure reforms. Key priorities for 2007 include: completion of the
reclassification exercise for central government employees; implementation of
financial management reforms in the civil service, including bringing into operation
2
the new Finance Administration and Audit Acts and passage of a new Procurement
Bill, which will enhance budgetary control.
•
Public debt. The authorities noted their commitment to achieving the fiscal
benchmarks recommended by the Monetary Council of the Eastern Caribbean Central
Bank—a public sector debt-to-GDP ratio of 60 percent; and a public sector primary
balance consistent with achieving and maintaining this ratio over the medium term
(that is, by 2020).
6.
The staff has learned that the uniform Banking Act was approved on
November 20, in line with the 2004 ECCU regional FSAP report. As noted in paragraph
31 of the staff report, this step should help foster a strong and sound domestic banking
system.
Summary of Central Government Operations, 2005–07
(In percent of GDP, unless otherwise stated)
Est.
2005
Est.
SM/06/393
2006
Est.
2006
Active
SM/06/393
2007 1/
Budget
2007
Staff Est.
Budget
2007 2/
Total revenue and grants
Current revenue
Grants
30.5
29.0
1.5
31.1
29.6
1.5
32.7
31.1
1.7
31.7
30.3
1.4
35.0
29.2
5.8
32.4
29.2
3.2
Total expenditure and net lending
Current
Capital expenditure
Net lending
36.1
27.8
8.3
0.0
35.4
27.7
7.6
0.0
37.6
28.9
8.7
0.0
34.3
26.7
7.6
0.0
41.9
28.8
13.1
0.0
36.6
28.8
7.9
0.0
Current balance (before grants)
1.3
1.9
2.1
3.6
0.4
0.4
Overall balance (cash basis)
Of which
Primary balance
-5.6
-4.2
-4.9
-2.6
-6.8
-4.2
-2.6
-0.4
-1.0
0.8
-3.3
-0.7
72.1
81.6
21.3
1,161
70.8
84.5
24.9
1,258
71.4
85.2
24.0
1,258
67.6
83.5
23.9
1,370
72.4
88.5
25.1
1,370
69.8
85.9
25.1
1,370
Gross central government debt (in percent of GDP)
Public sector debt (in percent of GDP)
Debt service as a proportion of current revenues
GDP at market prices (EC$ millions)
Sources: Ministry of Finance and Planning; and Fund staff estimates and projections.
1/ Under the active scenario current spending is curtailed by holding constant the wage bill and transfers in real terms,
while capital expenditure is reduced through the elimination of low-priority capital projects. Current revenues increase by the
introduction of the VAT and other revenues are held constant as a share of GDP.
2/ As in the approved budget, except for capital expenditures and grants, for which an execution rate of 60 percent and
55 percent, respectively, is assumed in line with the expected outturn for 2005-06.
Public Information Notice (PIN) No. 07/134
FOR IMMEDIATE RELEASE
November 13, 2007
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
IMF Executive Board Concludes 2006 Article IV Consultation with
St. Vincent and the Grenadines
On January 17, 2007, the Executive Board of the International Monetary Fund (IMF) concluded
the Article IV consultation with St. Vincent and the Grenadines.1
Background
Economic activity has rebounded, with real GDP growing by over 4 percent in 2006, and further
acceleration expected in 2007. The improved performance in 2006 was largely driven by a pick
up in construction and tourism-related services, as well as a rebound in weather-affected
agricultural production. However, fiscal imbalances continued in 2005 and 2006, with the overall
deficit of the central government reaching 5½ and 4¼ percent of GDP, respectively. Persistent
fiscal imbalances have engendered a sharp increase in the stock of public debt, rising from
68 percent of GDP in 2000 to reach about 85 percent of GDP in 2006.
The external current account deficit narrowed in 2005, yet is likely to expand in 2006. The
contraction in 2005 was driven by a slowdown in imports due to the weakening of GDP growth,
which more than offset a fall in agricultural exports. In 2006, the current account deficit is
expected to widen slightly (to about 24½ percent of GDP), mainly on account of continued high
oil imports and imports related to private construction and public capital expenditure, despite a
rebound in banana exports.
1
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with
members, usually every year. A staff team visits the country, collects economic and financial
information, and discusses with officials the country's economic developments and policies. On
return to headquarters, the staff prepares a report, which forms the basis for discussion by the
Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the
Board, summarizes the views of Executive Directors, and this summary is transmitted to the
country's authorities.
2
The continued depreciation of the U.S. dollar against major currencies has bolstered external
competitiveness, particularly since 2002. Real wage increases have remained modest, and
St. Vincent and the Grenadines has steadily increased its share of stayover tourism visitors to
the Eastern Caribbean Currency Union and the wider Caribbean. Nonetheless, with rising oil
prices and flat export prices, the terms of trade has deteriorated in recent years.
Broad money (M2) growth remained strong in 2005, as bank deposits were used to fund both a
surge in net lending to the central government and an expansion in private credit. In 2006,
public sector credit increased, due mainly to the funding of several large infrastructure projects.
While prudential indicators of the financial sector and disaster preparedness have both
improved in recent years, vulnerabilities remain. Although high government exposures and
deposits in the state-owned local bank remain a potential source of vulnerability, asset quality
and capital adequacy in the country’s commercial banks have risen since 2003. St. Vincent and
the Grenadines is one of the world’s most disaster-prone countries, yet has made good strides
in enhancing disaster preparedness and mitigation, including by development of a National
Emergency Response Plan, introduction of a National Building Code, and participation in
regional risk pooling.
There has been some progress in implementing broad structural reforms. The authorities
continue in their efforts to diversify farm production into non-banana agriculture (through the
Agriculture Diversification Program). In order to raise the contribution of tourism to economic
activity, the authorities intend to upgrade the country’s air transportation infrastructure over the
medium term, with construction of an international airport (on St. Vincent) and a jetport (in the
Grenadines). The erosion of trade preferences for the country’s important banana exports has
adversely affected the incomes of rural households, and the authorities have attempted to
bolster the country’s social safety net to alleviate poverty. On fiscal issues, the authorities intend
to enhance revenue raising by the introduction of a value added tax (in May 2007) and a
market-valuation based property tax in 2008.
Executive Board Assessment
Directors welcomed signs that growth has accelerated, but stressed that the challenge remains
to develop new sources of growth without compromising fiscal and debt sustainability. The
country’s fiscal position is of concern, and a front-loaded fiscal adjustment is needed to place
the debt ratio on a more sustainable path, increase the scope to address social needs, and
enable the economy to respond to adverse shocks. Directors stressed the importance of
undertaking major infrastructure investments, including in the air transport sector, only if they
are judged viable, and financing them with grants or highly concessional loans.
Directors welcomed the improvements in tax policy and administration, including the planned
adoption of the VAT. They called for steps to curb tax concessions and to introduce a flexible
retail fuel pricing mechanism to help maintain revenue buoyancy and ensure that the tax system
promotes new investment. Directors emphasized that, despite the boost in revenues, stricter
spending discipline is needed, through better prioritization of capital spending, limits on civil
service employment, and reform of the social security scheme.
Directors welcomed that the financial sector’s vulnerability to adverse shocks has been
reduced. They supported the ongoing efforts to improve the balance sheet of the state-owned
National Commercial Bank and strengthen financial sector supervision.
3
Directors supported the efforts made to bolster national disaster mitigation and preparedness.
They called for further efforts, including in the context of regional pooling of catastrophe risk
insurance.
Directors considered that the erosion of trade preferences for bananas is placing considerable
pressure on rural households, which increases the importance of developing a reform
program—including well-targeted and temporary safety nets—to ease the transition away from
bananas and elicit donor support. In this vein, Directors urged donors to accelerate
disbursements to the country of promised aid and grants.
Directors agreed that data with respect to areas central to surveillance are adequate.
At the same time, they encouraged the authorities to continue their efforts to improve the
coverage, timeliness, and dissemination of statistics, including with technical assistance support
from donors and CARTAC.
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's
views and analysis of economic developments and policies. With the consent of the country
(or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations
with member countries, of its surveillance of developments at the regional level, of post-program
monitoring, and of ex post assessments of member countries with longer-term program engagements.
PINs are also issued after Executive Board discussions of general policy matters, unless otherwise
decided by the Executive Board in a particular case.
4
St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2002–07
2002
2003
2004
(Annual percentage change, unless otherwise specified)
Output and prices
Real GDP (factor cost)
3.2
2.8
6.8
Nominal GDP (market prices)
5.8
4.6
6.7
Consumer prices, end of period
0.4
2.7
1.7
Consumer prices, period average
0.8
0.2
3.0
Banking system
Net foreign assets 1/
Net domestic assets 1/
Of which
Net credit to the public sector 1/
Credit to private sector 1/
Broad money 1/
Average deposit interest rate (in percent per
annum)
Average lending interest rate (in percent per
annum)
Est.
2005
Proj.
2006
Proj.
2007
2.2
5.5
3.9
3.7
4.1
8.3
4.5
3.2
5.5
8.9
3.5
3.9
2.9
5.4
5.7
-3.9
15.7
-2.0
-4.6
11.0
1.4
6.9
1.9
6.9
4.8
4.3
8.3
-4.0
0.6
1.9
2.7
0.8
13.7
7.6
4.3
6.4
4.9
1.7
8.3
4.2
2.9
8.9
4.4
4.6
3.3
2.9
…
…
11.6
11.8
9.7
9.4
…
…
(In percent of GDP, unless otherwise specified)
Public sector
Central government finances
Total revenue and grants
Total expenditure and net lending
Current expenditure
Capital expenditure
Overall balance (cash basis) 2/
Primary balance (after grants)
Central government debt 3/
Public sector overall balance 4/
Gross public sector debt 3/ 4/
External sector
External current account
Stayover arrivals (percentage change)
Public sector external debt (end of period)
External public debt service
In percent of exports of goods and services
Real effective exchange rate (- = depreciation) 5/
External terms of trade (- = deterioration)
31.7
34.0
28.0
6.4
-4.2
-1.6
68.3
-5.8
70.5
31.3
34.7
26.7
7.9
-3.3
-0.6
67.8
-3.0
72.3
30.0
33.6
26.3
7.2
-3.6
-1.1
70.4
-6.4
78.1
30.5
36.1
27.8
8.3
-5.6
-2.6
72.1
-7.3
81.6
31.1
35.4
27.7
7.6
-4.2
-0.4
70.8
-9.1
84.5
31.7
34.3
26.7
7.6
-2.6
0.8
67.6
-5.9
83.5
-11.5
9.8
46.5
-20.8
1.2
50.9
-25.1
10.4
54.1
-24.0
9.5
54.7
-24.5
5.0
53.3
-24.9
7.0
50.7
6.5
-5.4
2.6
7.3
-5.9
-4.9
10.0
-4.6
0.0
11.5
4.9
-4.3
13.0
..
0.6
12.5
...
-2.1
Sources: Eastern Caribbean Central Bank, Ministry of Finance and Planning; Banana Growers’ Association, and IMF
staff estimates and projections.
1/ Annual changes relative to the stock of broad money at the beginning of the period.
2/ Includes the difference between the overall balance as measured from above the line and from below the line (i.e.,
financing), which may include float and unidentified discrepancies.
3/ Net of intra-public sector debt (mainly central government debt to the NIS).
4/ The consolidated public sector includes the central government, the National Insurance Services (NIS), Kingstown
Board, and ten nonfinancial public enterprises.
5/ The trade weights used for the REER calculation were changed in 2006 for the entire series.